Yes, the markets will melt up in the early going – maybe 500 points on the Dow – but there’s another story that we are looking at that could have more impact than a “rally with an air foundation” which is how we read the time-out on trade tariffs….

As our subscribers know, we’ve been spending some time with our consigliere sorting out “How the news may fall”  in order to pencil up a good estimate of how 2019 might play out in financial markets. It’s not a simple process.

Our current thinking is that Special Prosecutor Robert Mueller might place Donald Trump in the cross-hairs of an impeachment drive in the House during the first half of next year.  What was significant in the news flow over the weekend, however, is that an intelligent observer could begin to see a direct path for a Trump prosecution to follow.

Let’s begin with the report that when the Trump Organization was considering a major development project in Russia, that there was talk that a $50-million dollar penthouse in such a building might be given to Russian president Vlad Putin.

So far, it sounds OK on the surface, but it runs afoul U.S. law.  Specifically, the Foreign Corrupt Practices Act which – if you’re not aware of it – Wikipedia sums up this way:

“The Foreign Corrupt Practices Act of 1977 (FCPA) (15 U.S.C. § 78dd-1, et seq.) is a United States federal law known primarily for two of its main provisions: one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.[1] The Act was amended in 1988 and in 1998, and has been subject to continued congressional concerns,[2] namely whether its enforcement discourages U.S. companies from investing abroad.”

In our analysis this weekend, it appeared that Mueller might be able to make a referral to the House, based on information coming out now about the Moscow talks.  Such an impeachment drive, we figure, would likely pass in the House.  If then passed on to the Senate, the use of the Foreign Corrupt Practices Act as a basis of impeachment might pass by a handful of votes.

That’s because the difficulty republicans would find themselves in – especially the weaker ones – would be their democrat opponents would cast them as “supporting corrupt practices” and such support would dog them into their political futures.  “Foreign Corrupt Practices” is a strong-enough charge that that any defense would be presented as ‘supporting corruption.”  That’s “political poison pill” stuff.

The problems for Trump don’t stop there.  Because while things looked good over the weekend with a 90-day delay implementing higher trade tariffs against Chinese goods (which should keep after-Christ electronics very inexpensive and result in a screaming short-term rally today) the details of the purported Moscow Penthouse offer remained murky.

The Russians, too, seem intent on keeping it that way.  Again, this weekend, the Russian side insisted that discussions about the penthouse had simply “disappeared.”  And Russia Today reported “Kremlin admits Cohen emailed them about Trump Tower project! …so what’s the big news again?”  *Initial reports of the deal date back many months.

How Might This Lead to Impeachment?

At issue, are two lines  of inquiry that might be pursued by Mueller.

Its key to understand the dual thrusts of the FCPA.  One deals with “issuers” of debt and this part is enforced by the Securities and Exchange Commission (SEC).  This isn’t where Trump’s got problems near as we could figure.

Where the hot water and possible Mueller referral to the House might be based is on requirements in 15 U.S. Code § 78dd–2 – Prohibited foreign trade practices by domestic concerns.

“It shall be unlawful for any domestic concern, other than an issuer which is subject to section 78dd–1 of this title, or for any officer, director, employee, or agent of such domestic concern or any stockholder thereof acting on behalf of such domestic concern, to make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to,,,”

An extensive list of officials and limitations follows.

Importantly for Trump, there are a couple of “carve outs” in the FCPA that might offer a defense.

The first is that while a bribe – to do something unusual – is not permitted under the FCPA, IT IS permissible to offer payments which are “expediting fees.”  The idea is it’s OK to pay foreign officials to just speed-up what they would otherwise get-around to doing -eventually –

anyway.  Referred to as “grease money” – in non-U.S. bureaucracies, this gets things (like permits) to the top of bureaucratic paperwork.  The specific wording is…

“(b) Exception for routine governmental action Subsections (a) and (i) shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.”

The other carve-out in the Foreign Corrupt Practices Act is for “promotional purposes.”

“(2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to—(A)the promotion, demonstration, or explanation of products or services; or
(B) the execution or performance of a contract with a foreign government or agency thereof.”

The tactical problems for Trump – even when honestly defense along these lines – would be the democrat/left-friendly corporate media would label any and all such defenses as “defending corruption.”

Even IF the republican president could defend narrowly on the facts (which will be disputed and “tried in the press”) Mueller will also have solid grounds for a referral based on alleging a conspiracy to violate the FCPA.

You see, the thing with a conspiracy is – as our consigliere points out, Trump or his colleagues don’t actually have to DO anything.  Just  talking about an idea (like a Putin “gift”) would constitute conspiring.  The Wiki entry on conspiracies is key here:

“In criminal law, a conspiracy is an agreement between two or more persons to commit a crime at some time in the future.[1] Criminal law in some countries or for some conspiracies may require that at least one overt act be undertaken in furtherance of that agreement, to constitute an offense. There is no limit on the number participating in the conspiracy and, in most countries, no requirement that any steps have been taken to put the plan into effect (compare attempts which require proximity to the full offense). For the purposes of concurrence, the actus reus is a continuing one and parties may join the plot later and incur joint liability and conspiracy can be charged where the co-conspirators have been acquitted or cannot be traced. Finally, repentance by one or more parties does not affect liability (unless, in some cases, it occurs before the parties have committed overt acts) but may reduce their sentence. “

This is broadly spelled out in “18 U.S. Code § 371 – Conspiracy to commit offense or to defraud United States.”  Trump obviously did not attempt to defraud the United States, but under the broader “commit offense0″ portion, even talking about a special gift of a penthouse, could put everyone who touched the idea in legal jeopardy.

While we were kicking this around, we naturally eyed the position of the Clinton Foundation because it, even more clearly than a “let’s given Putin a penthouse” that had the feel of a “pay for play.”  However, our view was that the Clinton’s were just doing what lawyers do…finding a way to circumvent some intent without technically breaking the law.

All of this might seem far-fetched speculation, were it not for developments in Chicago last week,.  There – last Thursday – the city offices of powerful alderman (and one-time Trump Chicago Tower attorney) Ed Burke were raided.  Chicago Mayor Rahm Emanuel telling the Chicago Tribune ‘You don’t need me to guess about what are the implications’.”

There was an earlier Chicago Trib story last week that we notice because – while detailing the Ed Burke office raid and his promises to fully cooperate, this paragraph jumped out:

“The timing of that development and the raid on Burke’s offices led to rampant speculation that the searches were related to work Burke’s law firm did for Trump. The Burke investigation, however, was being conducted in conjunction with the U.S. Attorney’s Office in Chicago, not Mueller’s office, said Joseph Fitzpatrick, a spokesman for U.S. Attorney John Lausch.”

And that got us to thinking:  “Who got the penthouse at Trumps Chicago Tower?”  Wikipedia contained this:

“Two units on the 87th and 88th floors sold for prices in excess of $5 million in 2009 directly from the developer. After a few soft years in the real estate market, it took until August 2014, for units to sell for prices in excess of $1000 per square foot. Two units sold for over $3 million that month including a $3.99 million sale, which was the highest sale price in the building since 2009.[154][155] The penthouse sold for $17 million in late 2014 to Sanjay Shah, the founder and CEO of Vistex.”

For us, the questions came down to 1) Was the Burke raid related to Mueller?  And 2) If so, might this be documenting “Here’s what a “normal penthouse” sale looks like?”

By the time we’d digested the possibilities, what came into focus is that by late summer or early fall of 2019, the possible impeachment of Trump might be wending its way through the machinery of Capitol Hill and by the fall of next year, we may be dealing with president Pence.  A democrat owned House would love nothing more as a lead-in to 2020 and the FCPA is a possible path…

Familiar names will dominate the 2020 republican side, principally Kasich and Pence, perhaps.  While on the democrat side, Cory Booker, Beto O’Rourke plus a few of the “new leftists” would likely run.  Specifically, the Sanders-Ocsavio-Cortez test run comes up shortly to see how it will play to the peeps, though she’s too young for VP – grooming for something else?.

That said, the decline of the US economy after the “Tariff Talk Pop” in the markets this week  – perhaps commencing right after a possible Mueller referral – might again swing the political pendulum in America.

That’s the kind of “framing” we work through in order to make an intelligent guess at how the future could roll out.  We’re not pleased with the results, but an attack on Trump, via the FPCA as outlined here, is certainly one set of initials to be scanning for,

Because this one might have teeth.

Screaming, Insane Rally

This is how the rally looks to us as we are set to pop up 500 Dow points at the open today.

As you can see, until we better the high set just under the red “2” we are not breaking to the upside.  Maybe a matter of time, though.

Is there really a trade deal?

Depends who you ask.  The Chinese haven’t said too much about the Trump “trade deal” except we carefully note that it is only a 90-day hold.  Over the period we have American Holidays and the Chinese will have their New Year celebrations.

Importantly, CNBC headlining that “Many Chinese-language state media outlets left out apparent key points the White House said it had secured, including that the U.S.-China agreement to not increase tariffs is conditional on the two sides reaching a resolution on other issues within 90 days” is indicative to us of the two very different management styles between Xi and Trump.

Xi Jinping, is more conservative politically than Trump in that he is more of an “Under-promise and over-deliver” leadership style.  Trump, on the other hand, has often promised more than he can deliver (Border Wall, anyone?) but he’s totally unrepentant about it.

Part of today’s market hype also contains a “Lazarus deal:”  Qualcomm says NXP deal is dead, even as China seen open to okaying it.

While the tariff  delay is a good thing, it hasn’t fundamentally changed anything. We still don’t have a deal, although both Trump and Xi Jinping have tremendous political pressures to come up with some kind of deal that can be “easily sold to the people back home.”  Trump is touting it for the masses…  No post G20 press conference until after the Bush funeral, either.

So that’s what the market will be doing this morning.  Running up on hype.

The problems, however, come later in this week.  Despite some reports that the Mueller investigation might pop around December 5 (mid week) we also face a long-ton of economic data including employment data.  ADP will be out mid-week, trade deficit data is due Thursday, and non-farm payrolls plus the federal empl9yment data comes out Friday.

This morning’s pop in the market is a “Bull Gift” we’re waiting to see how the wages side of the job report looks… At some point, everyone who can work will be working – and that’s when the music could begin to stop.  World outlook darkens as factory activity slips, orders fall.

Qatar to leave OPEC and focus on gas as it takes swipe at Riyadh.

France: Fires of Digital Mob Rule

We have warned you uncountable times about how the internet becomes a two-edged sword.

On the one hand, people can become better informed and more participatory in their governance.  Conversely, though, the Internet in general and phone texting in particular provides for flash mobs and more.

The poster-child for coming restrictions on the Internet may be seen, we think, it how France is going through its worst rioting in 50-years in what started as a tax protest, but which is now a kind of Digital Mob looking for things to bitch about – and burn.

People in Europe are relatively new to “freedom of speech” – at least at the device level.  The problem is that governments are still “top down” ruling (hate speech laws and such) but they have no idea how to let people be free.  And since the French people aren’t highly experienced at wielding freedom, it’s like letting the kids play with matches.

“Anti-Fragile” believers don’t understand how complexity becomes a series of “fire hazards.”

In clean-up and damage control mode, president Macron to call on U.S. funds to build French start-ups, not steal them.  But wait, mon frer...isn’t that “free trade?”

A Key “War Alert” Just Went Off

When chief Nostracodeus software programmer Grady and I were working on the “linguistics” that would give an indication how close a shooting war of any kind was, we decided that “calling up reserve” was a very solid one to track.

For your fingernail-biting enjoyment today: “”Ukraine calls up reservists amid tensions with Russia.”  No, that problem didn’t go away, either.

Oh, and from the State Department: Iran Test Launches Ballistic Missile Violating UN Security Council Ban.

Old News?

Dutch Court Rejects 69-Year-Old Man’s Request To Be 20 Years Younger.

Gotta love the notion..eventually some US law firm will have to give this a go…

OK, moron the ‘morrow…