David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Would You Let Trump Run Your Company?

    In Washington, people struggling to come to terms with all the details of James Comey’s sacking and the claim that Donald Trump asked him to drop the FBI’s investigation into Michael Flynn have reached back to Watergatefor comparison. But in many ways the more appropriate perspective is through a business lens: The immediate issue is whether a boss tried to halt embarrassing revelations about his company; the underlying one is whether he knows how to run it.

    Of course, running a country is not the same as running a company. A president is both more constrained (by Congress, the press, and voters) and less so (chief executive officers, as a rule, can’t bomb their opponents). And Trump is not the first incoming president to have boasted of his corporate experience; remember George W. Bush, the first MBA president? But Bush had also run Texas. No president has tried to claim the mantle of CEO-in-chief as completely as Trump.

    On the campaign trail, he cited his business experience all the time, contrasting his decisiveness, managerial skills, and shrewdness as a negotiator with the amateurish stumbles of Barack Obama and Hillary Clinton (not to mention several generations of U.S. trade representatives). Many of his first supporters knew him only as the archetypal “You’re fired” boss on The Apprentice. He rushed to bring in figures from the corporate world, luring Rex Tillerson from Exxon Mobil Corp. to run the State Department and a string of Wall Streeters. The stock market initially boomed. Trump’s message to business has been simple: Finally you have an executive in charge of the executive branch. “In theory I could run my business perfectly and then run the country perfectly,” he boasted to the New York Times shortly after his election. “There’s never been a case like this.”

    So out of all the ways in which Trump might want to be measured, judging him as a chief executive would seem to be the fairest to him. Forget about ideology, his political agenda, or whether you voted for him; just judge him on whether he has been a competent executive. Would you want to leave him in charge? Or would you be calling an emergency board meeting?

    The Comey fracas is the latest in a long list of apparent transgressions for which a normal CEO might lose his job. In the last week, Trump stood accused of having passed on intelligence secrets to the Russians. Any business chief who invited a competitor into the boardroom and then disclosed sensitive information would be in peril. (Klaus Kleinfeld lost his job at Arconic Inc. merely because he wrote an unauthorized stroppy letter to a truculent shareholder.) Appointing inexperienced relatives to important positions is not normally seen as good corporate governance. Jes Staley is currently in trouble at Barclays Plc just for allegedly protecting a friend. The White House was made aware that Flynn had lied to the vice president on Jan. 26, but he didn’t hand in his resignation to Trump until Feb. 13. Any board would want an explanation for that delay. Finally, any CEO who says something that is manifestly untrue in public or on his résumé is in hot water. Those who refuse to correct themselves quickly and satisfactorily often have to go—as happened to the bosses at Yahoo! Inc. and RadioShack.

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    Email of the day

    On Trump’s crisis:

    You might be right David, you often are. BUT if he threatened to drain the swamp you can be sure there will be many alligators trying to stop him. He's an unusual character for President but I think we need also to read the alternative press because mainstream is certainly gunning for him.

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    Brazil crisis deepens with probe of president, top senator

    This article by Peter Prengaman and Mauricio Savarese for the Associated Press may be of interest to subscribers. Here is a section:

    Brazil's political crisis deepened sharply on Thursday with corruption allegations that threatened to topple the president, undermine reforms aimed at pulling the economy from recession and leave Latin America's largest nation rudderless.

    Stocks plunged, both chambers of Congress cancelled sessions and President Michel Temer's office canceled his planned activities Thursday in the wake of a Globo newspaper report that he had been taped endorsing bribery of a former lawmaker.

    Protests were planned in several cities and opposition politicians took to Twitter and local news channels to call for Temer to resign or be impeached, arguing his government no longer had legitimacy

    "I can't see how Temer survives this," said David Fleischer, a political science professor at the University of Brasilia. "There are just too many people against him now."


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    Japan GDP Grows 2.2%, Longest Growth Streak in 11 Years; Asian Stocks Slide

    This article by Robert Guy for Barron’s may be of interest to subscribers. Here is a section quoting Barclays:

    The 0.5% q/q growth in Q1 reflected positive contributions from both net exports (0.1pp) and domestic demand (0.4pp). Notably, the heavily weighted private consumption component increased 0.4% q/q, resulting in the large contribution for domestic demand. This reflected an upturn in spending on semi-durables, together with the recovery in durables since last year. Private consumption was also up for services, but down for non-durables. That said, the strength of consumption in the Q1 GDP data may largely reflect an upswing in demand-side data and slightly overstate the underlying trend, setting the stage for a slowdown in Q2.

    In other areas of domestic demand, private capex increased 0.2% q/q (Q4: 1.9%), a second consecutive gain. Also, housing investment rose 0.7% q/q, sustaining positive growth. Meanwhile, public fixed capital formation (public investment) fell 0.1% q/q in Q1 (Q4: -3.0%), a third consecutive decline. However, we expect such investment to turn positive in Q2 as the effects of the FY16 second supplementary budget materialize. At the same time, real exports increased 2.1% q/q and real imports rose 1.4% q/q. For real exports, this marked a third consecutive quarter of growth (Q3 16: 1.9%; Q4 16: 3.4%). This reflects the ongoing recovery in demand from overseas, especially Asia.


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    Thanks to a subscriber for this well-argued report by Tyler Broda and colleagues at RBC making the case for a bull market in industrial commodities because they are still cheap and prices are likely to rise. Here is a section:

    The data shows, unsurprisingly, that the sector is cyclical. What we find fascinating is that the downturn from 2012-2016 was so intense that most of the data sets are now showing extreme cyclical levels. As we have anecdotally pointed out at numerous times, the behaviours of the mining management has changed (for now). Starting with the success from cutting excess thermal coal and zinc production, Glencore was able to take leadership in focusing on meeting market demand rather than “maximising” sunk capital utilization. This has spread to the iron ore industry where Rio Tinto’s “Value over Volume” mantra is  noticeable shift in strategic culture following the change of CEO. We are seeing more rationality in production across the board and financing remains sparse for greenfield projects. Investors are demanding discipline and management teams are largely delivering.

    Although the rhetoric suggests that this time is different, and an appropriate level of skepticism is advised, the data does back up the above anecdotal trends. In our view, the sector has rarely been positioned in as constructive a position as it is now and will take time to unwind with the inflexibility of certain data sets (for instance, total production is likely to fall over the medium term if expansion capex is nearing zero) as well as vastly improved cash situations (free cash flow yields have never been higher).

    Total copper equivalent production has stayed relatively flat through the 2013-2016 period as the initial impacts of slowing capex levels began to reduce growth trends. Additionally, the removal of production has reduced the production base (either via some small divestments or by closure due to lower prices). This should increase the productivity of the remaining assets as it would be presumed these are better assets and there is more management focus that can be applied where it matters.

    The rolling 3-year production growth is now down to sub-2% growth rates and we would not expect (beyond a copper and iron ore led production uptick in 2018) that this will be able to grow with such low levels of planned expansion capex and the lead times that it takes from project start to finish.

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    Trump Faces Deepest Crisis of Presidency With Comey Memo

    Here is the opening of this fascinating article from Bloomberg:

    Donald Trump is facing the deepest crisis of his presidency after contents of a memo written by James Comey when he was FBI director surfaced Tuesday, alleging that the president asked him to drop an investigation of former National Security Adviser Michael Flynn.

    The White House was already on the defensive over the president’s firing of Comey a week ago and over a report Monday that Trump disclosed sensitive intelligence to Russian officials. Then another political bombshell exploded Tuesday night.

    After a conversation Comey had with Trump in February, a day after Flynn was ousted for what the White House said were misleading accounts of his conversations with Russia’s U.S. ambassador, the FBI director wrote a memo documenting the Oval Office meeting. In it, Comey said the president asked him to abandon the Flynn investigation, according to a person who was given a copy of the memo and spoke on condition of anonymity.

    “I hope you can let this go,” Trump told the FBI director, according to the memo as cited by the New York Times, which first reported its existence. The contents of the memo have subsequently been confirmed by other news organizations, including Bloomberg, although the memo itself has not yet surfaced publicly.

    The revelation raised questions about whether the president sought to influence the FBI at the same time the agency is investigating Russian interference in the 2016 election and possible collusion with Moscow by Trump associates. The memo’s emergence, after Trump fired Comey, had congressional Democrats raising the specter that the president engaged in obstruction of justice, an impeachable offense.

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    Impeachment Talk May be Premature, but it isn't too soon to Discuss the Legal Standards for Removing a President

    As soon as Donald Trump was elected, some of his critics argued that he should be impeached. Those arguments were reckless and irresponsible, and an insult to the many millions of Americans who voted for him. Impeachment is a singularly grave act -- a remedy of last resort. Those who think that they favor impeaching any president should ask themselves this question: If I strongly supported his policies, would I still think that there were sufficient grounds for impeachment?

    If that is the right question, then talk of the possibility of impeachment is beginning to look less reckless, and less irresponsible, than it did a few months ago.

    To be sure, legitimate grounds for impeachment have yet to be established. But the dismissal of FBI Director James Comey, possibly because of his investigation into alleged connections between Russia and the Trump campaign, alongside the apparent leaking of classified information to Russian officials, makes it appropriate to inquire into the legal standard -- and to probe some of our majestic Constitution’s unresolved mysteries.

    The founding document says that the president can be impeached for “Treason, Bribery, or other high Crimes and Misdemeanors.” The first two words are not obscure. But what are “high Crimes”? And what are “Misdemeanors”?

    The Constitutional Convention provides some answers. At a late stage in the Constitution’s drafting, treason and bribery were the exclusive grounds for impeachment. George Mason offered a strong objection, arguing that the president should be impeachable if he engaged in “many great and dangerous offenses” that did not count as treason or bribery. To include those offenses, he moved to add the words “or maladministration” after bribery.

    After the motion was seconded, James Madison responded that that term was so vague that it would mean, in practice, that the president would serve at the pleasure of the Senate. Mason himself agreed. He withdrew his motion and substituted the words “high Crimes and Misdemeanors.” Apparently he believed that the new words would cover “many great and dangerous offenses” -- and thus have the requisite latitude.

    For us, then, a central question is how to understand “high Crimes and Misdemeanors” in a disciplined way, so that they do not mean “maladministration.” It is tempting to say, as many people do, that the Constitution authorizes impeachment only when the president has committed a horrible crime -- a violation of the law of the same magnitude as treason or bribery.

    But it can’t be right to say that impeachment is available only in cases of crimes. Suppose the president flies to Moscow and proclaims that he will spend 2018 there, studying the works of Lenin and Marx, and doing presidential business only when he can find the time. Or suppose he announces, in advance, that he will pardon anyone who kills a political opponent or a member of the press. Or suppose he reports that Martians have started to communicate with him, and that he has vowed to follow their guidance.

    In all of these cases, impeachment would be legitimate. The president may have committed no crime -- but he has committed a “misdemeanor,” understood as an exceedingly bad act.

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    Trump Should Worry: Comey Memo Describes a High Crime

    If President Donald Trump asked FBI Director James Comey to stop investigating National Security Adviser Mike Flynn and his ties to Russia, that’s obstruction of justice. But let’s be clear: It’s the impeachable offense of obstruction. It’s probably not the criminal version of that act. With the evidence now available, it’s extremely unlikely that an ordinary prosecutor could convict Trump.

    This is an outstanding example of a crucial distinction that Americans badly need to keep in mind. High crimes and misdemeanors, to use the Constitution’s phrase, aren’t the same as ordinary crimes. What makes them “high” is their political character. High crimes and misdemeanors are corruptionabuse of power, and undermining the rule of law and democracy. They don’t have to satisfy all the technical aspects of an ordinary crime. And this act of Trump’s, as described in a memo written by Comey first reported Tuesday by the New York Times, probably doesn’t.

    Start with the federal obstruction statute, 18 U.S.C. Section 1503. The first part of the law has to do with trying to influence jurors in the course of a trial; we can ignore it for our purposes.

    The second part of the law punishes anyone who “corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.”

    On a close reading, this isn’t a great fit with the president asking the director of the Federal Bureau of Investigation if he can let a probe go because the target is “a good guy.” Remember, as a constitutional matter, the director of the FBI, like the attorney general and the rest of the machine of federal law enforcement, works for the president.

    Although there has been a strong tradition of separating investigation and prosecution from the president -- a tradition grossly violated by Trump’s request -- it’s still just a tradition, not a legal requirement.

    Thus, as a constitutional matter, Trump has the authority to propose ending an investigation. If he wanted to, Trump could just order the investigation to be brought to an end. He wouldn’t even have to exercise his pardon power, another way to put a preemptive stop to investigations. He could just direct his subordinates to cease.

    To be sure, Comey probably would have resigned had this order been given. The point is that Trump could have given it, legally speaking.

    Given Trump’s inherent constitutional authority to end the Flynn investigation himself, it’s pretty hard to say that he was “corruptly” obstructing or impeding “the due administration of justice.” It’s within prosecutorial discretion to decide not to go after someone because he’s a good guy. The target’s character and career of public service are legitimate factors to consider in the course of the investigation and decision of whether to bring charges.

    It’s not that the president can never be guilty of the crime of obstruction. He can. It would be a federal obstruction crime for the president to lie to or to mislead investigators. It would be an obstruction crime for the president to hide evidence of a crime. But those examples are fairly different from the president exercising authority over investigations.

    The one credible legal argument that could be made by a prosecutor seeking to charge Trump would be that he was indeed acting “corruptly” if his true intent was to protect himself and his administration, not just give Flynn a break.

    Suppose a president owed a favor to an organized crime leader and asked the FBI director to drop the investigation. That would presumably count as a corrupt act, and would count as obstruction.

    It’s not at all clear how you could prove Trump’s intent here, except maybe by taped conversations where he says he wants to protect Flynn to protect himself. Nor is it at all clear that acting “corruptly” under the statute would include saving himself from embarrassment. The upshot is that I don’t think Trump could be prosecuted for a crime on the basis of this report, and I am not at all sure that he actually committed a federal crime, legally speaking.

    Impeachment is another matter. Using the presidential office to try to shut down the investigation of a senior executive official who was also a major player in the president’s campaign is an obvious and egregious abuse of power. It’s also a gross example of undermining the rule of law.

    This act is exactly the kind that the Founding Fathers would have considered a “high crime.”

    And it’s a high crime the president could perform only by virtue of holding his office.

    Practically, it still seems unlikely that a Republican House would impeach the president, much less that two-thirds of the Senate would vote to convict and remove him from office.

    But a Democratic House would have more than enough material now to start the impeachment process -- including the revelation of the request to Comey. And the House could choose to impeach even if it calculated that the Senate probably wouldn’t convict.

    The act of impeachment would have tremendous symbolic ramifications. And it would include the detailed investigative oversight that so far has been lacking in Washington.

    Trump’s firing of Comey now looks pretty different in the light of this news. Right around now, the president is probably asking himself whether firing the FBI director was the right decision. And if he isn’t, he should be.

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