The Finance 202: Wall Street shrugs off Mueller indictments – Washington Post

THE TICKER

Investors processed some troubling news out of Washington on Monday by downgrading their expectations for a tax overhaul. But the mild stock sell-off that resulted had apparently little to do with the first indictments from Robert Mueller’s probe of the Trump team’s alleged Russia ties. 

Instead, the market was responding to a Bloomberg News report that House tax writers are considering phasing in their proposed cut in the corporate tax rate over five years. That plan would make it less expensive to slash the rate but also delay the benefit to companies that shoulder a higher tax burden. 

As for the bombshell developments in the Russia story that shook official Washington to its studs Monday, Wall Street largely shrugged them off. “Investors are much more used to high-frequency noise coming out of the administration,” says Vincent Reinhart, chief economist at investment firm Standish Mellon. “When you get so much news, you begin to dismiss some pieces.”

It’s not that investors aren’t following the Russia saga. Recall that on May 17, the stock market saw its worst one-day decline of the year — with the S&P 500 and the Dow Jones industrial average both shedding 1.8 percent — after the New York Times reported that President Trump had asked then-FBI Director James Comey to drop his investigation into former national security adviser Michael Flynn. That swoon owed to fears the scandal would swamp Trump’s economic agenda, derailing hopes for a tax overhaul and other initiatives that would goose the ongoing stock market rally.  

The following day, the Justice Department appointed Mueller as special counsel — and the market resumed a rally that has added 8.75 percent to the S&P 500 in the five and a half months since then. Two days before the tax bill’s big reveal in the House, Mueller delivered his first three arrests (one of a less high-profile former campaign foreign policy adviser George Papadopoulos). But investors appear at least in part to agree with Republicans, who insisted Monday that the probe won’t distract from the pursuit of their top domestic priority. 

“It’s ‘Fool me once, shame on you; fool me twice, shame on me,’” says Brian Belski, chief investment strategist at BMO Capital Markets Equity Research. “People have been fooled so many times with respect to Trump being impeached and this or that happening, and investors have lost out because of it.” 

Watch House Speaker Paul Ryan (R-Wis.) respond to the Mueller charges on Monday morning: 

In a radio interview earlier, the speaker vowed that said House Republicans would stay focused on their tax agenda:

Todd Sohn, a technical analyst with Strategas, says the May episode taught investors that they should “ignore the short-term gyrations that can occur from political events. If your longer-term case for equities is intact, you need to stick with that.”

And of course, prospects for a tax overhaul only represent one input among a multitude driving investment decisions. Market analysts point to strong economic fundamentals as the engine pushing equity prices to new nosebleed highs, with solid third-quarter earnings underlining the health of American companies. 

That said, analysts also agree that a collapse of the tax project would prompt a painful correction on Wall Street. Goldman Sachs recently estimated that the S&P 500 would shed at least 5 percent. Gil Luria, director of institutional equity research at DA Davidson, tells me it could look even worse than that, placing the potential downside at a 10 percent drop. 

And investors are keenly tracking news from the Russia probe to evaluate whether its reverberations will knock the tax overhaul off track. “For the market to have a major change in perception regarding the corporate tax reduction outcome, the political development has to be much more significant than former campaign officials being indicted,” Luria says, pointing instead to a break in the Mueller investigation “that would terminate this presidency.” 

John Akridge, co-founder of Height Securities, agrees that only a clear line to Trump himself is likely to spook investors again. “That’s where the market would turn over the apple cart,” he says. 

In the meantime, analysts say investors’ bullishness belies their private clamoring for intelligence and analysis about the churn of the investigation. “At no other time in my 28 years on Wall Street have I seen this,” Belski says. “My institutional clients are saying one thing and doing another. During meetings they’re defensive, bearish, cautious. And after the meeting ends they go and buy stocks, because they have to keep pace with the market.”

Powell-in-waiting. Trump plans to announce Thursday he will nominate Jerome Powell to head the Federal Reserve, two people briefed on the decision tell my colleagues Heather Long and Damian Paletta: “Powell, a Republican, is widely viewed as a safe pick who is unlikely to make any dramatic changes to the Fed’s handling of the economy at a time when the stock market is soaring and unemployment is at a 16-year low. Unlike some of the other candidates Trump considered, Powell has been supportive of Yellen’s policy of slowly raising interest rates, which have been at historic lows for nearly a decade as the Fed looked to help the economy recover from a massive recession. Trump has expressed interest in keeping rates low as he aims to stimulate the economy and get more Americans higher-paying jobs.”

Five things bankers should expect from Powell, via the American Banker: “1. A (relatively) quick and painless nomination process. 2. Powell has outlined clear views on regulation… and would likely mean piecemeal, practical revisions to aspects of the post-crisis regulatory regime. 3. A consistent message from the Fed… on both regulatory and monetary matters. 4. A moderating force among regulators. 5. A new push for GSE reform.”

Here’s a look at what we know about the first charges from the special counsel probe:

RUSSIA WATCH: 

Mueller charges three. The Post’s NatSec team: “Special counsel Robert S. Mueller III on Monday revealed charges against three former Trump campaign officials — including onetime campaign chairman Paul Manafort — marking the first criminal allegations to come from probes into possible Russian influence in U.S. political affairs. The charges are striking for their breadth, touching all levels of the Trump campaign and exploring possible personal financial wrongdoing by those involved, as well as what appeared to be a concerted effort by one campaign official to arrange a meeting with Russian officials.

One of the three charged, former Trump foreign policy adviser George Papadopoulos, admitted to making a false statement to FBI investigators who asked about his contacts with foreigners claiming to have high-level Russian connections. Manafort and longtime business partner Rick Gates, meanwhile, were charged in a 12-count indictment with conspiracy to launder money, making false statements and other charges in connection with their work advising a Russia-friendly political party in Ukraine.”

Mueller sends a message. And it translates roughly to, “Beware, I’m coming.” The Post’s Devlin Barrett, Sari Horwitz and Ellen Nakashima: “Without uttering a word, Mueller’s message was clear, according to veteran lawyers: He isn’t bluffing, and witnesses are talking. The double-barreled court filings ratchet up the pressure on everyone under scrutiny in the investigation, lawyers said, in part because they show that a former Trump campaign adviser began cooperating with the FBI three months ago. ‘This is the way you kick off a big case,’’ said Patrick Cotter, a white-collar defense lawyer in Chicago who once worked as a federal prosecutor in New York alongside Andrew Weissmann, who is spearheading the prosecution of former Trump campaign chairman Paul Manafort and his deputy, Rick Gates.”

To Russia, with knowledge. The Post’s Roz Helderman and Tom Hamburger: “Several weeks after Donald Trump secured the Republican presidential nomination, his national campaign co-chairman urged a foreign policy adviser to meet with Russian officials to foster ties with that country’s government. “Make the trip, if it is feasible,” Sam Clovis wrote in an August email to George Papadopoulos.

The email, included in court papers unsealed Monday, shows how an otherwise low-profile adviser has become a focus of the federal probe into possible coordination between the Trump campaign and the Kremlin. Papadopoulos was in contact with several senior Trump campaign aides about his efforts to broker a relationship between Trump and Russian President Vladimir Putin, the court papers show. In addition to Clovis, who now serves as senior White House adviser to the U.S. Department of Agriculture, Papadopoulos wrote to campaign manager Corey Lewandowski and campaign chairman Paul Manafort, the newly released documents show.”

Read the indictments here. Or The Post’s annotated version here. And this is a timeline of how Papadopoulos tried to work with the Russian government.

Trump reels. Phil Rucker, Bob Costa and Ashley Parker, for the hometown paper: “President Trump woke before dawn on Monday and burrowed in at the White House residence to wait for the Russia bombshell he knew was coming.

Separated from most of his West Wing staff — who fretted over why he was late getting to the Oval Office — Trump clicked on the television and spent the morning playing fuming media critic, legal analyst and crisis communications strategist, according to several people close to him… With rising irritation, he watched live footage of his onetime campaign adviser and confidant, Paul Manafort, turning himself in to the FBI…

But Trump’s anger Monday was visible to those who interacted with him, and the mood in the corridors of the White House was one of weariness and fear of the unknown. As the president groused upstairs, many staffers — some of whom have hired lawyers to help them navigate Mueller’s investigation — privately speculated about where the special counsel might turn next.

“The walls are closing in,” said one senior Republican in close contact with top staffers who spoke on the condition of anonymity to speak candidly. “Everyone is freaking out.”

When Trump met with The Washington Post editorial board he listed the members of his foreign policy team, calling Papadopoulos “an excellent guy:”

Republicans dodge. The Post’s Karoun Demirjian and Sean Sullivan: “They sidestepped it. They expressed alarm, but not outrage. They said Congress should consider taking action. But they cautioned against moving too aggressively… GOP leaders, eager to move past the explosive revelations, avoid further inflaming tensions with Trump and refocus on their legislative agenda, tried to brush aside calls from Democrats and a handful of their Republican colleagues to use their powers to protect Mueller’s probe from interference by the president. They also avoided discussing the substance of the charges Mueller filed.”

Watch Sen. Charles Grassley (R-Iowa) act out the Republican strategy at a Monday press conference: 

Washington braces. “The hardest part for official Washington is not knowing what happens next,” The Post’s Michael Scherer writes. “Democrats fret that President Trump might try to shut down the inquiry. Republicans worry that their last best hope for a legislative win, a tax overhaul, could fall victim to the scandal. And the president’s denial that his campaign worked in any way with Russia continues to be tested by new disclosures.

The only person with any significant control over events, special counsel Robert S. Mueller III, offered no hints Monday on his next move beyond the day’s bombshells — legal filings that included the indictment of two former Trump campaign officials and the guilty plea of a third.”

WH: Mueller’s safe (for now, anyways). White House press secretary Sarah Huckabee Sanders said Monday that Trump has “no intention or plan” to fire him, Politico reports

Watch Paul Manafort enter the FBI field office:

Manafort’s lavish lifestyle. He can’t take it with him. The Post’s Michael Kranish and Tom Hamburger: “A few years before he became [Trump’s] campaign chairman, longtime Republican political operative [Ma]nafort went on a spending spree with money funneled through a network of offshore bank accounts, a federal indictment unsealed Monday alleges. He bought a $1.5 million brownstone in a trendy New York neighborhood, and a $1.9 million home in Arlington, Va. He paid for three Range Rovers and a Mercedes-Benz, landscaping at his Hamptons getaway, and pricey improvements at his house in Palm Beach, Fla. In all, out of more than $75 million that flowed through the offshore accounts, more than $18 million was “laundered,” with income concealed from the U.S. government, and was used in part to cover Manafort’s “lavish lifestyle,” the indictment says.”

Bloomberg has this close-up on Manafort’s real-estate holdings, which include properties in Brooklyn, Virginia and California. 

Podesta quits. Politico’s Anna Palmer and Theodoric Meyer: “{Democratic super-lobbyist Tony] Podesta announced Monday that he would be stepping down from the firm he founded in 1988 with his brother, John Podesta, amid reports that special counsel Robert Mueller could bring criminal charges against him and his firm. Mueller’s team is investigating work that Podesta did on behalf of Paul Manafort for a Ukrainian nonprofit… Sources familiar with the firm said it would rebrand in the next day or so under the leadership of the Podesta Group’s longtime CEO Kimberley Fritts. Discussion of Podesta exiting the firm had been ongoing for several months, they said. What’s next for Podesta is less clear. He told colleagues Monday that he ‘doesn’t intend to go quietly, or learn how to play golf.’ He said he ‘needs to fight this as an individual, but doesn’t want the firm to fight it.'”

The story notes that Podesta has some things in common when it comes to his lifestyle: “He has a home in Washington a few doors down from Barack Obama, a villa in Italy, an apartment in New York and a multimillion-dollar art collection. He’s been a K Street rainmaker, holding fundraisers for the Democratic Party’s top elected officials and mingling with the most powerful liberals in the country. Last week, he attended Hillary Clinton’s 70th birthday party.” Maybe this is Trump’s backhanded, double-secret strategy for draining the swamp. 

TAX FLY-AROUND: 

GOP to preserve local property tax deduction. The Post’s Mike DeBonis and Damian Paletta: “House Republican leaders are making last-minute changes to their tax bill in an attempt to win over skeptical members within their own party, crafting a provision that would allow Americans to deduct their local property taxes from their federal taxable income. House Ways and Means Committee Chairman Kevin Brady (R-Tex.) had planned for months to prohibit people from deducting any state or local taxes from their federal taxable income as part of a sweeping overhaul of tax rules, but huge pushback from Republicans in states such as New York and New Jersey precipitated the change. Discussions are ongoing, and it remains unclear whether the change will placate the holdouts.”

Collins names her price. Bloomberg’s Sahil Kapur: “Republican Senator Susan Collins of Maine said Monday she’s opposed to two tax breaks for the wealthy that her party leaders are pushing for, indicating that her vote won’t be easy to win on President Donald Trump’s top legislative priority. ‘I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year,’ Collins said during an interview with Bloomberg News. ‘I don’t think there’s any need to eliminate the estate tax.’ Repealing the estate tax and cutting the individual rate from 39.6 percent for top earners ‘concern me,’ she said, adding that she’s conveyed her opposition to party leaders.”

WH shifts logic on cuts for the rich. NYT’s Jim Tankersley: “On Monday… Sanders opened her press briefing with a story that, at its core, is a defense of cutting taxes on high earners because they pay a greater share of taxes than those on the lower end of the income scale… The point here is that the Trump administration is shifting away from the president’s own words. They’re not saying the rich shouldn’t get any tax relief — they’re saying the rich deserve to get one.”

Tiberi challenged. Politico’s John Bresnahan: “Retiring GOP Rep. Pat Tiberi is under fire from government watchdog groups who complain the veteran lawmaker shouldn’t be involved in crafting the House Republican tax bill while negotiating for a job with an Ohio business group. The Ohio Republican, a senior member of the Ways and Means Committee, denies any conflict of interest and refuses to recuse himself from the tax debate. Tiberi’s aides say he intends to continue work on the matter until he leaves Capitol Hill on Jan. 31. Tiberi has formally notified the House Ethics Committee, as required under House rules, that he is negotiating with the Ohio Business Roundtable to take over that group. Those talks are ongoing… 

Companies that belong to the Ohio Business Roundtable would benefit from the Republican tax bill, they note, and so Tiberi should be barred from working or voting on a package that is likely to slash tax rates for big and small companies alike. Ohio BRT members include large companies such as Marathon Petroleum, Sherwin-Williams, Cintas, and Owens-Corning, as well as smaller Ohio-centric firms and hospitals. The organization has only hired a lobbyist directly one time, although member companies have their own lobbying and government affairs units.”

Brady’s moment. The House’s top tax writer gets the profile treatment from the WSJ and Bloomberg. From the WSJ: “Mr. Brady has done much of his work in sorting through the puzzle of tax policy at night, out of a Washington townhouse he shares with three other Republicans, including Mr. Scalise. His lives in the Woodlands, Texas, which he returns to on weekends. At his shared D.C. quarters, Mr. Brady usually sits on a duct-taped leather armchair in the living room with a baseball game on in the background, papers in his hands, and eating a low-budget meal. ‘It’s popcorn, some beer or wine, cheese packets you get at the airport and maybe hot dogs,’ Mr. Brady said. ‘This is not Bobby Flay’s kitchen.’”

From Bloomberg: “Brady, who wears an Apple Watch everywhere, isn’t the most charismatic politician, but he’s a smooth operator who has learned at least one trick of surviving in Washington over his 20 years in Congress: He never goes off script. He holds a twice-weekly 10-minute conversation with reporters in the Capitol and — almost without fail — manages to avoid making news. And he’s meticulous, demanding that his staff ensure all Ways and Means Committee documents have consistent formatting and branding, said one former aide. He landed the chairman’s post in November 2015 after Paul Ryan — who had defeated him for it the year before — was dragged into the Speaker’s chair amid a power vacuum. It’s a powerful perch; Ways and Means oversees taxes, trade and entitlements. Some past chairmen have been known for their firm control of the panel. Brady is viewed as more of a consensus builder.”

Arbitration rule arbitration. Politico’s Lorraine Woellert: “Consumer Financial Protection Bureau Director Richard Cordray made a personal appeal to President Donald Trump to veto a congressional override of a landmark arbitration rule that allows consumers to bring class action suits against financial firms. In a letter to the president, Cordray said consumers should have the right to bring lawsuits just the way Trump had when he was in business. ‘This letter is not about charts or graphs or studies,’ Cordray wrote. ‘Instead, it is simply a personal appeal to you, asking you to uphold this rule.’ The letter was extraordinary given the antipathy that many Republicans have toward the independent watchdog agency. Some GOP lawmakers have called on Trump to fire Cordray for what they say is his overly aggressive regulation.”

See the whole letter here: 

From the New Yorker: 

A cartoon by @b_loper. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on Oct 30, 2017 at 8:08am PDT

Today

  • The Tax Policy Center holds an event featuring IRS commissioner John Koskinen.

  • The Senate Committee on Homeland Security and Governmental Affairs holds a hearing on examining the cost, information security and accuracy of the 2020 Census.

 Coming Up

  • The Senate, Banking, Housing and Urban Affairs holds a hearing on various nominations on Wednesday.

  • The House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection holds a hearing on “Securing Consumers’ Credit Data in the Age of Digital Commerce” on Wednesday.

  • The House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on data security on Wednesday.

  • The House Financial Services Subcommittee on Oversight and Investigations holds a hearing on “Examining the Community Development Block Grant-Disaster Recovery Program” on Wednesday.

  • The Federal Deposit Insurance Corporation holds an Advisory CommitteeMeeting on Wednesday.

  • Google, Facebook and Twitter testify before the House Intelligence Committee on Wednesday.

  • The Consumer Financial Protection Bureau holds its Fall 2017 meeting on Thursday in Tampa, Fla.

  • The House Financial Services Subcommittee on Housing and Insurance holds a hearing on sustainable housing finance on Thursday.

  • The National Economists Club holds an event with the American Chemistry Council’s chief economist Kevin Swift on Thursday.

  • Carter Page testifies before the House Intelligence Committee on Thursday.

  • The Institute for Financial Markets holds the Smart Financial RegulationRoundtable on Thursday and Friday.

  • The Heritage Foundation holds an event on reforming FINRA on Friday.

  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on “Legislative Proposals to Improve Small Businesses’ and Communities’ Access to Capital” onFriday.

  • The Washington Examiner holds an event on the tax bill with House Speaker Paul D. Ryan (R-Wis.) on November 8.

President Trump and First Lady Melania Trump welcome trick-or-treaters to the White House on Halloween eve: 

Is the White House haunted?

From the Late Show with Stephen Colbert: “‘Tis the Season for Treason: A Very Mueller Christmas:” 

Seth Meyers takes a closer look at the indictment of three former Trump officials: 

The Finance 202: Wall Street shrugs off Mueller indictments – Washington Post}

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