The Calm Before The Storm?

Washington and Wall Street may look like two very different worlds, but there’s a definite overlap between them. For example, policies that affect tax rates, interest rates, government spending, and inflation impact both Wall Street and Main Street.

It’s probably safe to put investigations by Special Counsels into this category, too.

In the case of Robert Mueller, no one knows exactly when he will conclude his report, nor does anyone know what, if anything, he will find regarding possible Russian collusion in the 2016 presidential election. That, however, isn’t stopping people from speculating about it, and among those is Fred Wilson, a venture capitalist with an enviable record who is not afraid to express controversial and arguable views.

Wilson is the founder of the venture capital firm Union Square Ventures. If his views about the events that he expects to unfold are even partially correct, by the end of 2019 Wall Street will look very different than it does now, and so will America.

Venture capitalists tend to be optimists, but at least in this case Wilson is anything but that. Among his predictions for this year is that the S&P 500, now at 2,625, will drop approximately 25 percent to 2,000. He forecasts that the bottom will fall out of the global economy. And most startling of all is his opinion that Mueller’s report will be filled with accusatory and very damaging findings about Pres. Trump. He believes Mueller’s report will be so devastating that Trump will be impeached by the House, and that he will be forced to resign from the presidency. To quote a word he used, Wilson thinks 2019 will be a “doozy.”

If these events materialize, there will be so much uncertainty that both government and corporate spending would fall sharply. And so would stock prices.

What Rebound?

After the very steep selloff in late 2018, investors were hoping the market would rebound this year. So far this hasn’t happened. In fact, there’s been precious little for investors to cheer about anywhere.

Chinese stocks got off to a weak start and continued to slide after reports that growth in that economy was the slowest in 28 years. Shares in Europe continued their losing ways, in part because of the uncertainty about Brexit. And reports about the lack of progress in trade talks with China are just one of the issues weighing on investors in the US.

According to Zero Hedge, a business/politics web site, the combination of these developments will force business leaders in the US to become even more cautious. At the same time, “rising interest rates will force companies to forego funding for marginal projects. And when marginal projects don’t get funded, the economy is in trouble.”

Around The World

Wilson says the weakness on Wall Street will not be confined to the US; the rest of the world will also likely suffer.

Even technology stocks, which were an important part of the long-running bull market, would be affected. “I expect we will see IPOs (initial public offerings) from big names like Uber, Lyft, and Slack, although I think those deals will get priced well below the lofty expectations they have in mind right now.

“It would not surprise me to see total venture capital investments in 2019 decline from 2018,” he adds. “And I think we will see financing take longer...and valuations to come under pressure for even the most attractive opportunities.”

The Mueller Report

But the most important event of this year could be the Mueller Report, and Wilson expects it will be “devastating.” In his view, it will outline a history of Trump’s allegedly illegal activities going back decades and include his campaign for president.

As a result of those, the House will impeach him. If so, Trump could be forced to resign from the presidency in return for a pardon for him and all those close to him. Mike Pence, currently vice president, would become president. “We will have a different president of the United States by the end of 2019,” said Wilson; he expects Mueller to issue his report late in the winter or early in the spring.

It should be noted that Wilson’s firm, Union Square Ventures, has a position in crypto currencies, which may benefit if this scenario will materialize. “2019 will be the year that crypto bottoms,” he said. “Many of Union Ventures’ crypto investments will soon start to produce positive returns.”

It also should be noted that the events Wilson anticipates are based on opinion, and no matter how informed those are, they are still just that: opinion. In this case, however, one way or another, events will come to a head in the relatively near future, and savvy investors would do well to prepare for all possibilities.

The Final Word

What does the public think of Wilson’s views? As may be expected, the opinions of readers who commented on this news story varied sharply. One wrote that Trump won’t be impeached by the Senate because it is controlled by Republicans. Another dismissed that view by citing a comment attributed to Cardinal Richelieu: “Give me six lines from the pen of the most honest of men and I’ll find something in them to hang him.”

Others noted that Mueller’s investigation has already been going on for a very long time and the fact that he still hasn’t announced anything impeachable is proof that there is nothing to find. Still another said: “Prosecution, no; persecution fits better.”

Two other observations about this subject are worth noting. First, if Trump is forced to resign, the danger of a horrible selloff on Wall Street is much more likely. Second, the country is already sharply divided, with pro-Trump and anti-Trump emotions already at fever pitch; one has to worry that we’re getting close to a breaking point. In this context, whatever one’s political views, forcing Trump from office is the last thing the country needs now.

Given the rising tensions, it would be helpful to remember the advice of Chazal sometimes quoted by Rabbi Avigdor Miller, zt”l: “We should always pray for peace in our country. The alternative is unthinkable.”

Sources: bloomberg.com; forbes.com; zerohedge.com.