Who Needs Smooth Transitions?

With soon-to-be acting Defense Secretary Patrick Shanahan, back in October.


Trump Decides Mattis Leaves Right Away


When Defense Secretary Jim Mattis resigned last week, in his resignation letter he said he’d stay on until the end of February to ensure a “smooth transition”. Trump of course was given that letter at the time Mattis resigned, and accepted it. But when that letter started being widely read (including by us) as a slap in the face and sharp criticism of Trump’s world view, the President apparently grew angry and decided Mattis had to go by the end of the year.

He’ll be replaced on January 1st, on an acting basis by Mattis’ current deputy, Patrick Shanahan. Shanahan is also a former top-level executive at Boeing, the giant airplane manufacturer and defense contractor. Here are a couple of good biographies from Politico and the Washington Post.

We could only find one public event where Trump and Shanahan previously appeared together, which was a visit to an Air Force Base in Arizona in October, which also served as an unofficial campaign event for Republican Senate hopeful Martha McSally. She and Shanahan were seated on either side of the President. (McSally lost to Democrat Kyrsten Sinema in the general election, but will be coming to the Senate anyway: she was appointed by Arizona’s Republican Governor to serve the rest of John McCain’s term).

At this meeting, when it came time to go around the room and praise Trump, Shanahan lauded both the President’s advocacy of expanding sales of military equipment to foreign governments, and credited him with counsel to “buy smart”.

Here’s that clip:

Trump has a habit of outsourcing the delivery of negative news, and this was no exception: according to the Washington Post’s Josh Dawsey, he assigned Secretary of State Mike Pompeo to call Mattis. Once that call was completed, Trump Tweeted:

All this means Trump within days will have a Chief of Staff, Attorney General and Defense Secretary, all in an “acting” capacity.

Meanwhile, the government shutdown drags on with lawmakers home for the holidays until Thursday. With just a couple of days from then until Democrats gain control of the House, what incentive is there to settle with Trump before the New Year? (Unless Trump pulls some miraculous PR coup that simultaneously flips the spotlight onto the Dems and stops him from looking like a petulant toddler).

Today, the stock market reopens after its worst week in 10 years. And that prompted a couple of odd moves over the weekend on the part of Treasury Secretary Steve Mnuchin. 

Both actions were apparently taken to reassure investors, but may have had the opposite effect.

Most alarming, or at least of most concern was Mnuchin’s announcement that he’d made a series of phone calls to heads of major U.S. financial institutions to make sure “they have ample liquidity available for lending to consumer, business markets, and all other market operations”, according to a release from the Treasury Department. Thing is, no one was really talking about a liquidity crisis, so why was Mnuchin so intent about bringing it up?

That comes one day after a really strange Tweet from Mnuchin where he quotes Trump as saying “I never suggested firing [Federal Reserve] Chairman Jay Powell, nor do I believe I have the right to do so”. (Since when does anyone have to Tweet on Trump’s behalf?) 

A lot of people will be away today, so trading is likely to be a lot more limited than usual. But that’s not necessarily a good thing. Fewer players and less liquidity tend to exacerbate market moves in either direction.

And if you believe in market lore, today would begin a 7-session span where traders typically look for a phenomenon known as the “Santa Claus rally”. Historically, the market has a tendency to go up the last few days of the year and the first few days of the New Year. If it doesn’t, they say, it’s a harbinger of bad news for stock prices in the year ahead.