22 August 2017

Trump's Downward Spiral

The Orange Man is in trouble.

A couple of months ago, I predicted that Trump was not going to be able to finish his first term.

I did not suggest that GOP might impeach him or that his core constituency would gradually turn against him.

In fact, I said the opposite.

GOP would never impeach one of their own, unless they reinforce social safety net, push for universal health care and increase taxes.

And at the rank and file level, polls indicated that there was no significant buyer's remorse among Trumpistas.

My prediction was based on the fact that Trump and GOP (and their wealthy donors) made a Faustian bargain whereby Trump was going to profit immensely from the presidency and, in exchange, he was going to deliver a specific legislative agenda designed to turn One Percenters into Point Five Percenters by repealing affordable health care, passing massive tax cuts for the rich and destroying the social safety net for the poor in any way he can.

I maintained that, because of his original feud with intelligence agencies, he was not going to be able to deliver an this legislative agenda as they were going to reveal all his money laundering deals with Russian oligarchs and organized crime in a steady drip, drip, drip movement.

And when that happens Trump will be toast, I said, because the One Percenters will desert him and along with them the GOP. He will be forced to resign.

Welcome President Pence.

I didn't think the downward movement would start this soon but it seems to be happening.

And exactly on the terms I suggested in my original post.

One Percenters are Leaving the Ship in Droves

If we follow my framework, we start with the fact that Trump has so far been unable to pass any legislation through Congress even though his party is controlling both chambers.

That in turn negatively affected his relations with One Percenters.

You already know that since June, five members of his business advisory councils have resigned (Elon Musk of Tesla and Bob Iger of ABC/Disney for pulling out of Paris accord and Kenneth Frazier of Merck, Kevin Plank of Under Armour and Intel's Brian Krzanich for Trump's reaction to Charlottesville).

And after his disastrous press conference on Tuesday, 15 August where he blamed the so called "alt-left" for the violent confrontation with neo-Nazis, many more CEOs headed for the door.

So much so that Trump announced that he was disbanding both of his advisory councils.

In fact, it turned out that it was not his decision.
On Wednesday morning, a dozen of the country’s most influential C.E.O.s joined a conference call, and, after some debate, a consensus emerged: The policy forum would be disbanded, delivering a blow to a president who came into office boasting of his close ties with business leaders.

With the collapse of the councils, the president has all but lost his most natural constituency — the corporate leaders who stood to benefit from his agenda of lower taxes and lighter regulation.
The bold rebuke by the CEOs is a big deal given Trump's penchant to attack companies on Twitter and the federal government's massive role in the economy. It is hard to govern if you have the captains of the industry against you.

Moreover, this is not a symbolic gesture. Wall Street is up in arms.

And I am not talking about Goldman Sachs CEO Lloyd Blankfein trolling Trump on Twitter.

Ray Dalio, founder of Bridgewater, one the world's biggest macro hedge funds with $150 billion in assets under management said that he was "cutting his exposure to risk because of his concerns about stability in Washington."
While I see no important economic risks on the horizon, I am concerned about growing internal and external conflict leading to impaired government efficiency (e.g. inabilities to pass legislation and set policies) and other conflicts.
See what I mean?

The high flying stock market was one of Trump's (unwarranted) selfies. It now looks like the markets are heading south.
“If you look at various valuation metrics, it’s hard to argue that this isn’t an overstretched market,” said Mohamed El-Erian, chief economic adviser to Allianz. 
Underscoring the view that the US stock market is overdue a correction, big investors such as Pershing Square’s Bill Ackman and Pimco’s Dan Ivascyn have recently said they have bought protection against any turbulence, and US equity funds have suffered nine straight weeks of outflows, with $4bn seeping out over the period according to EPFR.
 The currency and bond markets were especially hard hit.
US Treasury yields, which shot up after Mr Trump’s November victory in expectation of inflationary infrastructure spending, have sagged lower for much of 2017. The dollar has slid almost 9 per cent this year against a basket of other major currencies, and US small-cap companies, which would benefit from tax cuts and a stimulus-primed domestic economy, are down nearly 5 per cent in August. That puts them on track for their worst monthly performance since the global stock market slump in early 2016.
So that is the most damaging and consequential problem for Trump. And it will be the key to his undoing.

But the more pressing problem is the direction the Robert Mueller investigation seems to have taken.

Financial Shenanigans and Money Laundering

It is being reported that Robert Mueller has gathered a team of financial experts who are experienced in following dirty money, links to organized crime groups, campaign financing fraud and similar white collar crimes.

Which means that his focus is not obstruction of justice but rather financial shenanigans. And he is going after not just Trump but his sons and Kushner as well.

In that respect, FBI's  the pre-dawn raid to Trump's former campaign manager Paul Manafort's house to confiscate computers and various records is not a good sign for Trump. Manafort is a low hanging fruit (with his well publicized shady deals in Russia and Ukraine) and Mueller's move might have been designed to get his cooperation against bigger targets.

There is more.

The Guardian recently reported that Deutsche Bank executives were going to be subpoenaed by Mueller. In case you are wondering what might be behind this move, well, it is a complicated and potentially very damaging tale.

Trump had borrowed $640 million from the bank's real estate lending division before the 2008 crisis. When he was unable to pay the $40 million portion that came due, he sued the bank for its role in the subprime debacle to get out of his liability.

Unimpressed, Deutsche Bank countersued.

Then something amazing happened. The bank's wealth management unit lent the $40 million to Trump in order for him to pay back its own real estate division.

Trump then moved his business from real estate division to private wealth management unit. That unit continued to lend him another $300 million. And this, at a time when no US banks or Wall Street firms would do business with the Trump Organization.

Ivanka and Jared also became clients of the same division. Reportedly, Kushner's mother was given an unsecured $25 million line of credit and Kushner also got a loan of $285 million last year.
Apart from the Trumps and Kushners, Deutsche Bank also has deep ties to Russia. In addition to settling allegations earlier this year that it allowed $10 billion to be laundered out of Eastern Europe, Deutsche Bank had a “cooperation agreement” with Vnesheconombank, a Russian state-owned development bank that is the target of U.S. economic sanctions.
In case the name of the Russian bank sounds familiar that's because you remember it from a meeting between Kushner and its CEO Sergey Gorkov arranged by the Russian Ambassador Kislyak, a meeting he conveniently forgot about until it was leaked.

Deutsche Bank is connected to Russia and money laundering in another way.
. . . in May, federal prosecutors settled a case with a Cyprus investment vehicle owned by a Russian businessman with close family connections to the Kremlin. The firm, Prevezon Holdings, was represented by Natalia Veselnitskaya, the Russian lawyer who was among the people who met during the presidential campaign with Donald Trump Jr. about Hillary Clinton. Federal prosecutors in the United States claimed Prevezon, which admitted no wrongdoing, laundered the proceeds of an alleged Russian tax fraud through real estate. Prevezon and its partner relied in part on $90 million in financing from a big European financial institution, court records show. It was Deutsche Bank.
Besides Deutsche Bank, Russian money connection is evident in various Trump projects like his infamous Soho building.

Trump's Russian partners include the Bayrock Group owned by Tevfik Arif of Kazakhstan, the Samir Group owned by Tamir Sapir of the former Soviet Republic of Georgia.

They were involved in several Trump projects. And by all accounts their main business is money laundering through real estate deals.

Felix Sater, a Russian-born American, who was the managing director of Bayrock is mentioned as a person of interest for Mueller. (He is the one on the right, the guy in the middle is Arif)

Sater is a convicted felon with extensive ties to Russian and American mob.
Before linking up with the company and with Trump, he had worked as a mob informant for the U.S. government, fled to Moscow to avoid criminal charges while boasting of his KGB and Kremlin contacts there, and had gone to prison for slashing apart another man’s face with a broken cocktail glass.
As I mentioned previously, one of Bayrock principals sued the company and accused them of being a front for a large money laundering operation.
“Tax evasion and money-laundering are the core of Bayrock’s business model,” the lawsuit said of the financiers behind Trump Soho. The financing came from Russian-affiliated business interests that engaged in criminal activities, it said. 
More specifically, the suit
alleged that Bayrock was “covertly mob-owned and operated,” “backed by oligarchs and money they stole from the Russian people,” and “engaged in the businesses of financial-institution fraud, tax fraud, partnership fraud, human trafficking, child prostitution, statutory rape, and, on occasion, real estate.
Finally, there is a long list of projects and real estate deals that are considered clear conflicts of interest.

It is only matter of time for Mueller to indict a Trump family member.

Firing Mueller is not a good option because the information he gathered would be leaked again in a paralyzing drip, drip movement.

Ok then, you say, what are Trump's option at this point?

That is the subject of my next post.

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