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Thursday, November 14, 2019
HomeMarket CommentaryEmergency – SOS!

Emergency – SOS!

On January 15th I wrote an article in which I described that the most likely outcome to fund the government was congress passing a bipartisan resolution while President Trump declares the situation at the southern border a national emergency. And on Friday, this largely played out (though I also predicted that all of this would take place by January 21st and end the first shutdown). So, while I was correct on the ultimate outcome, I was off by a few weeks on the timing. But my other expectation was that all of this would have no effect on markets.

And on this point, I stand with my original conclusion – neither the contents of the bipartisan resolution nor the nature of the declared national emergency will have any effect on the markets. In fact, the market barely reacted to the declaration in real time. From a market perspective, this is as close to a non-event as it gets. Trade with China, Brexit, the Fed and other economic issues will continue to dominate the market cycle. Any noise surrounding the emergency declaration, be it a congressional override, lack of a congressional override, a lawsuit, or any other political maneuverings, will also have no effect on markets.

The decision to declare a national emergency to get what couldn’t be passed through congress is one with which I strongly disagree. It sets a very dangerous precedent where the current or future presidents could declare national emergencies to fulfill their campaign promises or other pet projects. And the results may not always be so benign for the markets. A democratic president could declare a national emergency on gun violence where they ban the sale of certain weapons. They could declare a national emergency in health care and mandate Medicare for all, enact a Green New Deal unilaterally, etc.

While this turn of events doesn’t warrant a new risk scenario in Portfolio Crash Testing, be sure that if the ‘emergency’ isn’t reversed by congress or the courts, we will begin to create scenarios around potential future ‘emergencies’ that may occur by presidential decree. We have promises from various parties that lawsuits are on the way to being filed, and we have the House likely to pass a resolution effectively undoing the ‘emergency’, and potentially even more than 50 votes in the senate. Overriding a veto is another issue, and it may come down to the courts to decide. Hopefully, we don’t have to start creating those scenarios.

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