Why The Manafort Trial Should Worry Wall Street

Paul Manafort departs Federal District Court after a hearing in Washington in April. He awaits another trial on Tuesday as Washington prepares for new fall dramas.  (AP Photo/Alex Brandon)

Washington D.C.’s new fall dramas get a sneak preview starting today.

Democrats and their friendlies will be trying to show their audience that Manafort is an example of President Trump’s collusion with the Russian government to beat Hillary Clinton. The message: Only a dummy thinks Trump is not in the White House thanks to Russia.

Republicans and their friendlies on Drudge, Breitbart, Infowars and Rush, plus Tucker, Hannity and Laura Ingraham will be steadfastly running defense and counterpoints to what will be aired on NPR, MSNBC, CNN and in the op-ed pages of The New York Times and The Washington Post. Get ready for it.

Former Trump campaign advisor Paul Manafort goes on trial today. The beleaguered strategic communications executive has been holed up in solitary confinement for a month, put there by Special Counsel and ex-FBI chief Robert Mueller, hoping to make Manafort sweat bullets. Some suspect he will sing like a canary. Like Maya Angelou once said: I know why the caged bird sings … because it must.

Manafort’s trial is another reality TV episode of “Russia Gate: The Special Counsel.” We are now in season two. Wall Street will be watching. Investors should be nervous.

To date, Trump has replaced Bill Clinton as the most recent Teflon president. He remains popular among his base. Everything the opposition predicted he would fail at, he has managed to prove them wrong. The trade war is not hurting the U.S. as many people imagined. North Korea did not shoot a missile at us. Russia is still sanctioned, even more so than under Obama (largely thanks to Congress). And the economy is growing strong. Corporate earnings are doing well thanks to fiscal stimulus and a general upbeat economy not only here, but around the world.

The sky is only falling for people who can’t seem to get out of bed in the morning without first checking social media for verification of their abject hatred for Trump.

Sadly for the Republicans, that hate for the president is the new wedge issue. Manafort’s trial will probably ratchet that up a lot.

This is why the Manafort trial should worry Wall Street.

Negative headlines in the Manafort trial could have serious implications for the midterm elections in November Photographer: Michael Nagle/Bloomberg

First, Manafort is not on trial for conspiring with Russians during the campaign. He has had ties with Russians like billionaire Oleg Deripaska, and Russian-friendly leaders of Ukraine. But so have other strat-com firms from London to Washington, including the Podesta Group, which is now defunct. In fact, the Podesta Group had a similar client in Viktor Yanukovych, Ukraine’s ex-president.

But none of that matters because we don’t know what prosecutors have found in their discoveries. It is best to assume the worse for Manafort. And if the plan is to make Manafort throw prosecutors a meaty anti-Trump bone or face the prospect of a life in prison, he might willingly take the bait. He owes Trump no favors.

Trump attorney Rudolph Guiliani has been busy blocking tackle ahead of the trial. He is now saying that collusion is not a crime. But wait. Who cares? Trump didn’t collude. Right? Guiliani’s rollercoaster commentary over the last 24 hours is indicative, I think, of the headline stress about to bear down on the S&P over the next three months.

If Manafort delivers the goods—real ones or imagined ones—this will be a notch in the Special Counsel’s belt ahead of the November midterms. Whenever the Special Counsel is active against Trump, it increases the Democratic Party’s chances to retake the House. Whenever the Special Counsel is quiet, it’s out of sight, out of mind for the electorate. Russia and the Russian investigation does not score in the top ten most pressing issues facing voters, according to Gallup.

Manafort’s trial essentially pushes Trump closer to getting Comey-fied. Like Hillary Clinton weeks before the election, then-FBI director James Comey revealed he had new info on her secret server (then said that it was all okay), tripping her up at the finish line in a close race. It may not be the main reason Hillary lost, but it can be chalked up as one of the reasons why she got beat by Trump.

The Manafort trial is part of the new, anti-Trump wedge issue. That issue is on the ballot in every state come November. This is like having a gay marriage or abortion initiative on a ballot back in the 1990s and early 2000s. It’s sure to rouse the rabble and get them to vote. Hate Trump? Vote Democrat.

Manafort’s trial is like a get-out-the-vote moment for Democrats running on that single issue.

President Trump feels he is being persecuted politically. But many in his party are not willing to call the Special Counsel investigation a “witch hunt” like POTUS does regularly. (Photo by SAUL LOEB/AFP/Getty Images)

Every poll suggests the Democrats are going to win back the House. It’s not a landslide victory, so missteps could cost them their goal. Assuming Manafort is a worst-case scenario for Trump, then Trump could slip in the polls and damage Republican chances in the fall.

For those who believe the Special Counsel is there for a reason—to damage an independent president with very little allegiance to official Washington, then now is the perfect time for Mueller’s team to reveal what they have discovered about the Trump campaign and the Russians.

As this unfolds, and if the Democrats take the House because of it, then the new House mandate is to impeach Trump. It’s that simple. They have stated this under no uncertain terms, despite stepping back on the subject on rare occasions. If the House flips, Trump is impeached.

Beyond impeachment, House Democrats like Maxine Waters (and even Senator Elizabeth Warren) said they want to roll back corporate tax cuts. A Democratic House means further talks of tax cuts are dead.

Representative Maxine Waters, a Democrat from California, says that Trump will be impeached the second the House flips. Trump’s market-friendly economic agenda would be jeopardized. (Photographer: Joshua Roberts/Bloomberg)

If there are enough anti-Trump Republicans in the Senate, Trump could face indictment. Mike Pence, a foreign policy hawk, becomes president. It is unclear if he would carry Trump’s torch on trade, or would reach out to antagonistic countries like North Korea, Iran and—to some extent—Russia.

While the market prefers no trade war with the Chinese, Trump’s removal from office would put future tariffs on hold. NAFTA negotiations would also be called off until after a Senate trial.

There is the chance that Trump survives all of this, and regulatory rollback, tax cuts and revisiting old trade relationships for the benefit of U.S. manufacturers continues as is.

There is a chance, I do not know how slim, that underdog-loving Americans take Trump’s side just like they did during Bill Clinton’s impeachment because of lying about an affair. (Who doesn’t do that?) Clinton’s popularity improved among independents, and he left office one of the most popular presidents since Ronald Reagan.

But given Trump’s difficult personality, it is hard to see him winning over the apolitical center if the onslaught of the Special Counsel and the Manafort trial continues to bear down on him for the next 100 days.

If Manafort is able to reveal evidence of Russian agents working with the Trump team to beat Hillary, it could get independent voters to either stay home or vote Democrat. Manafort also potentially opens a can of worms for Trump and his legal team, setting him up for a sit-down with Mueller that could lead to what Giuliani refered to as a “perjury trap.”

There is nothing good in store for the White House in a Democratic Party House.

To everyone on the Clinton wing of the Democratic Party, this man, James Comey, ruined HERstory. Will Trump be Comey-fied by the Special Counsel? November is a pivot point in the Trump-Russia scandal. If Trump and the Republicans maintain both houses, Trump practically has a mandate on immigration and trade. (Photographer: Andrew Harrer/Bloomberg)

Depending on how long this trial drags on, Manafort could set the tone for the Special Counsel and Trump this fall. What’s bad for Trump is bad for the Republicans in November. Trump will likely use his time on the campaign trail to trash-talk the Russia investigation, calling it a “witch hunt” and a “hoax.”

But should the Democrats take control of the House, it is worth noting that they cannot simply offer the electorate a sounding board for Trump. They have to offer something beyond mere opposition. If the market thinks a divided congress is bad for the economy, investors may finally bow out of this 10-year-old bull market.

Look out below.

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