by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EDT] The political problem du jour is that former FBI Director Comey apparently kept memos and notes of his meetings and phone contacts with President Trump.  This is standard practice in bureaucracies.  Writing “memos for the file” is a way to preserve one side of a conversation that can be retrieved in case of a dispute.  In a disagreement under normal circumstances this practice leads to a battle of the memos, where two people describe the same event in different ways, questioning whether either person perceived what actually happened.  However, in this circumstance, the president is at a serious disadvantage.  He tends to treat each day as a new one and never seems to feel bound by what has been said or done before.  We fully expect the White House to dispute Comey’s recollections of what transpired.  Unfortunately, it will be the word of a careful lawyer against a president who is anything but careful.  It will be difficult for the president to defend himself against what is likely to be a steady revelation of damaging allegations.

We still hold that we are a long way from impeachment.  It is important to note that impeachment will always be a political act.  Although it is reserved for “high crimes and misdemeanors,” the founders left such crimes undefined.  It is hard to fathom that the party that controls Congress would impeach a president from the same party unless there were obvious treason involved.  There is some talk that Trump could be removed via the 25^th amendment.  This covers a president who becomes incapacitated in office and becomes unable to discharge the duties of that office.  Only a majority of the president’s cabinet is required to trigger a 25^th amendment ouster; if the president rejects this finding, Congress would have to approve his removal from office by a two-thirds majority.

Again, we are still a long way from this happening.  However, the fact that this is even being discussed in the major media does show how far things have devolved.  Shortly after the Comey memo news hit the press, S&P futures fell hard and have not recovered.  We also note the dollar is under continued pressure this morning.  The financial markets are becoming aware that, at a minimum, much of the agenda that boosted confidence and lifted financial markets is in grave danger of not coming to pass.  We will see some level of deregulation but major changes to taxes, infrastructure spending and even trade policy may be stalled.

On Friday, voters in Iran go to the polls to select a president.  Hassan Rouhani, the incumbent, is in what appears to be a tight race against the hardliner Ebrahim Raisi.  Although there are others running, the race will mostly be between these two.  Rouhani is considered the reformer, although only in the framework of Iranian politics.  The more radical reformers, who want to curb the power of the Supreme Leader, have all been removed from politics with many in prison or under house arrest.  Raisi is the favored candidate of the Iranian Republican Guard Corp (IRGC) and is rumored to be supported by the Supreme Leader, the Grand Ayatollah Khamenei.  The big issue in the campaign is the continued poor performance of the economy and widespread corruption.  Rouhani is probably best suited to rid the economy of corruption; the fact that he hasn’t had much luck in this area is because the corruption comes from the most powerful in Iranian society.  Raisi is accusing Rouhani of either being ineffective against corruption or complicit.

It appears that the major problem in the Iranian economy is the heavy involvement of the IRGC which uses businesses to support its members.  Essentially, the IRGC skims funds from businesses and employs its members in these businesses.  The hardline clerics appear to be part of this system and thus corruption will likely remain a dampener on Iranian economic activity.

What makes this election critical is that the Supreme Leader is 77 years old, and there are rumors he suffers from cancer.  If he dies within the next few years, the president will play a role in selecting his successor; in fact, the president may become the next leader.  Thus, the election on Friday is important to the future of Iran and the path of stability in the region.

Finally, although the Macron election has led pundits to suggest that populism is in retreat, we see three items that suggest this sentiment may be overly optimistic.  First, last Friday, the Austrian coalition failed which will likely bring new elections soon.  New elections will give the populist Freedom Party another chance to gain control of Austria.  The party is leading in the polls but no party commands a majority.  Even in new elections, the Freedom Party may not win; the decision to break the coalition came from the center-right People’s Party, who is gambling it can pull enough supporters from the Freedom Party to gain a majority.  It is worth noting that the People’s Party seems to have concluded that in order to win the path to power requires becoming populist, meaning the policies of globalization and deregulation are in trouble.  Second, the Dutch, who turned away the populists in elections earlier this year, still haven’t been able to form a government, showing that the right-wing populists there may not be a majority but it is a large enough voting bloc to prevent the other parties from forming a government.  Third, in Greece, a general strike is being held today to protest against austerity.  Centrist policies that support austerity remain unpopular in the southern tier of Europe but are being forced upon them; at some point, a pushback appears inevitable.

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