After Comey: Will Russia Election Investigation Stall?

May 10, 2017

Despite the sacking Tuesday of the U.S. FBI Director James Comey, the investigation into Russian meddling in the U.S. presidential election is not over.

So say SGH Macro Advisors CEO Sassan Ghahramani and senior managing director Kevin Muehring. SGH is a New York-based consultant to asset managers and policy makers on the global economy.  The VanEck Vectors Russia exchange-traded fund (RSX) rose 1.6% Wednesday, while the iShares MSCI Emerging Markets ETF (EEM), which is hovering at a 52-week high.

One thing is clear to Eurasia Group analysts Alex Brideau, Jon Lieber, Jeffrey Wright and Cliff Kupchan: Removal of sanctions, which was a lynch pin in big upside for Russian equities, “remains off the table for the rest of this year.” They think presidents Vladimir Putin and Donald J. Trump will meet in July during the G20 summit, “but Trump won’t have the political muscle to sell cooperation with Moscow on arms control or other areas. De-escalation zones in Syria are a possible exception. Extended investigations will keep the bilateral relationship on dry ice for the foreseeable future.”

SGH wrote the following Wednesday on the subject of the Russia investigation in the United States:

” … in terms of the heated political demands for an independent special prosecutor to lead the investigation into Russia’s interference in the US elections and possible collusion with the Trump campaign, Senate Majority Leader Mitch McConnell moved quickly to steer those demands to the investigation already underway by the Senate Intelligence Committee under Republican Chairman Richard Burr of North Carolina and Ranking Democratic Member Mark Warner of Virginia.

This will help deflect the enormous political pressure on President Trumpand Attorney General Jeff Sessions to name a special prosecutor, which they have no intention of doing. But President Trump will still be facing a prolonged and deep investigation into the Russia affair.

Burr has considerable credibility on the Hill, and the Senate Intelligence Committee itself is well balanced in ideological terms. While [the committee] still lacks enough staff — so far it has been very reliant on Comey and the FBI for much of its initial work — it certainly won’t have any problem hiring staff now. And it has to be said: Burr and Warner have kept their committee together, which can’t be said of its House counterpart, which has imploded into near political oblivion.

Burr himself was just re-elected in November in a closely watch Senate race in North Carolina, largely on the Trump wave. But he is said to have a solid reputation in the Senate for being tough and highly unlikely to adhere to White House talking points. His most immediate response to the sacking of Comey, whom Burr had come to like, was to say he was “troubled by the timing and the reasoning.”

And as an aside, by the way, naming a special counsel, whether by Congress or the attorney general, is much more complicated than generally assumed, as the laws creating special prosecutors expired due to problems with numerous special prosecutions …”

Also on Tuesday, the United States announced it would arm a Syrian Kurdish militant group, the People’s Protection Units or YPG, that is fighting with Syrian troops against the Islamic State. Russia also said it would send more weapons to Syria as Russian Foreign Minister Sergey Lavrov prepared to meet with U.S. Secretary of State Rex Tillerson. Russia backs Syrian President Bashar al-Assad and his battle against rebels and Islamist militants trying to overthrow the government. Turkey, which shares a border with Syria and has many ethnic Kurdish citizens in its southeastern region, criticized the U.S. announcement; Turkey views YPG as a terrorist group. Kurds have no country, and Kurdish factions have mounted attacks within Turkey. “I hope this mistake will be reversed as soon as possible,” President Recep Tayyip Erdogan said, according to The New York Times.

The iShares MSCI Turkey ETF (TUR) rose 2.6% Wednesday, and the Central Europe, Russia and Turkey Fund (CEE) rose 0.7%.

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