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WHAT TO DO NOW?

This week witnessed the historic conviction of Donald Trump which may have forever changed politics in the U.S. I am not informed enough on the legal nuances of the case, but many people from both conservative and liberal media have cited numerous reversible errors that will be brought up under appeal. This will all play out in the coming months, but perhaps the plot will thicken if the judge orders Trump to jail. I suppose this will cause a very quick appeal as the Presidential election is in a few short months.

I want to bring this week’s events back to the impact on the economy and the markets. One of the longtime stabilizing factors in the U.S. was that we have been viewed as a country steeped in the rule of law. We have certainly witnessed other countries such as Russia, China, and Brazil use the courts to silence political challengers. If our legal system becomes a punch line or is viewed globally as a tool of the political elite, it could bring foreign direct investment in the U.S. into question. For example, a number of years ago we were working on a private placement deal for an oil field services company, and one of their markets was Venezuela. At that time, Venezuela was nationalizing certain assets, so we questioned the company about the concern of their capital equipment being seized by the government. The answer was very telling because they explained that we should not worry as they would never send their newest and most sophisticated equipment into Venezuela and would instead use only their older equipment.

I do not think there is an imminent risk that foreigners will steer clear of the U.S., but that situation does have a probability of occurring, a low probability, but a probability nonetheless. I also harken back to the 2020 election cycle, when I was in Europe speaking to a business associate who was chiding me about how far American politics had fallen. As always, I spoke of the virtue of our country, but we all must recognize after last week’s events something has changed and it is not for the better.

Thus far, the markets have not reacted negatively to the Trump news and that may be because the markets are discounting the entire episode as being political theater. Inflation and Fed action remain more top of mind at the moment. We are certainly seeing some economic statistics showing some slowing, but housing remains very strong, and inflation really is not abating. I continue to watch the relationship between wages and inflation, as wages are still growing faster than inflation which will contribute to the inflationary pressures present in the economy.

The next couple of weeks will provide some insight as to what is next for Trump as well as how voters are leaning. As pundits unpack the various parts of this legal battle, we will then return to what will likely again be a very tight election.

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