As of 1:30 am AST, on the eve of a vote on impeachment, bond yields stay relatively flat…

RatesFederal Reserve as of 11 January 2021Bloomberg as of 13 January 2021 1:00 am AST
Federal Funds Rate0.080.08
Prime Rate3.253.25
3-month Treasury0.080.08
2-year Treasury0.140.14
10-year Treasury1.151.12
30-year Treasury1.881.87
Source: Federal Reserve, Bloomberg

House votes resolution asking Pence to use 25th amendment to remove Trump

Last night the U.S. House of Representatives passed the following House resolution in its attempts to remove President Donald Trump prior to the end of his term. House Res 21 reads as following:

This resolution calls upon Vice President Michael R. Pence (1) to immediately use his powers under section 4 of the Twenty-fifth Amendment to convene and mobilize the principal officers of the executive departments to declare that the President is unable to successfully discharge the duties and powers of his office, and (2) to transmit to the President pro tempore of the Senate and the Speaker of thHouse notice that he will be immediately assuming the powers and duties of the office as Acting President.

Vice-President Pence has reportedly said that he does not intend to invoke the 25th Amendment. This means that the House will likely move to the next stage of its strategy which is to vote articles of impeachment against Mr Trump. Given the Democrats majority in the House, passage is expected.

The articles of impeachment would then move to the Senate for a trial. Indications are that, unlike last year’s attempt to remove the President from office via impeachment where a Republican-controlled Senate voted not to remove the President, there may be enough support on the part of Senate Republicans to find Mr Trump liable for “high crimes and misdemeanors”, the standard under the U.S. Constitution for removal. Senate majority leader Mitch McConnell has signaled that Mr Trump’s behavior, where allegedly encouraged supporters to march last week on the Capitol, amounted to an impeachable offense.

The establishment wing of the Republican Party, now in damage control as a result of the storming of the Capitol by Trump supporters and the resulting deaths of five people, would like nothing more than to move on from the Trump era and start laying the groundwork for the 2022 mid-term elections.

I don’t expect impeachment actions to have any bearing on pending policy actions designed to impact the economy. With only seven days left until the change in government, attempts to remove Mr Trump are designed to score political points with an electorate, a significant amount of whom believe the actions of individuals storming the Capitol amounted to an insurrection attacking the country’s representative institutions of democracy.

How the regulator’s mindset may impact cryptocurrency …

An article today in Bloomberg discussing how a Biden administration would address the regulation of cryptocurrency has me putting myself in the place of the regulator. What is the U.S. Securities and Exchange Commission’s world view of digital assets? How will the Commodity Futures Trading Commission’s view toward regulation of exchanges evolve? Will the Board of Governors of the Federal Reserve System view the payment system aspect of cryptocurrency as a threat to the current national and global payment system regime or as a welcome supplement that brings more efficiency and transparency?

Clarity on what may happen on the regulatory side of cryptocurrency requires that the trader first take a top-down view of how governments view the world and especially how they view markets. You will never hear a regulator utter the term “free markets.” That phrase is best suited for the rhetoric of politicians who inherit worn out campaign slogans and reboot them for the latest run for office. I doubt they themselves, a significant number of whom are not trained in economics, truly understand what a market is or can likely identify threats to it. Compound markets for digital assets with the mechanics of payment systems and the politician’s eyes glaze over and she falls back to what she knows best: sloganeering tainted with tropes that appeal to individualism, consumerism, collectivism, or whatever narrative they believe their constituency will buy into.

The professional regulator, on the other hand, uses law and regulatory code as a front or an excuse. Statutes and codes give the professional regulator cover for their underlying philosophy and narrative. Unlike the elected official who only spends minutes on issues of markets and their regulation, the professional regulator is the expert spending years developing her own philosophy and transitive narrative and reconciling that philosophy and narrative with at times archaic statutes that the elected official has dumped on her to interpret. With archaic statutes and codes as cover for the regulator, it is the trader’s task not only to generate returns from holding a digital asset but to best understand what that regulator’s philosophy is.

There are two types of regulator. One I term as the myopic regulator. This regulator focuses on the black letter of the law and the code. Their focus is primarily on whether the market participants are following the rules on the books. He does not take into consideration any wider view of the philosophy behind markets and regulation. If the rules are skewed more to trader protection, his interest will be in outcomes that favor trader protection. If the rules skew more toward brokerage or platform protection, the regulator’s interest will be in outcomes favoring platform protection.

On the other side is what I term the universal regulator. They have managed to synthesize the role of government, traders, and platforms. They have an interest in maintaining the viability of the market system. Government’s role, in their view, is to provide for an efficient and productive trading post where there is sufficient transparency between traders and where the exchange platform ensures speed, efficiency, and clarity of trade because without these characteristics, the American markets as a whole become less viable, less reliable. Government will expand or contract in order to meet its universal role.

The trader should be mindful of this regulatory environment, particularly the tug-of-war between more or less regulation of exchanges. Eventually the trader pays the price in terms of transparency, price fairness, and the level of fees, especially where trade is her primary means of livelihood and income. After all, trade boils down to an information game and staying informed on government actions as well as on how government itself can disrupt information flow is important to the trader’s success.

US Treasury announces borrowing estimates …

Source: US Treasury

November 2, 2020

Sources and Uses Table

WASHINGTON — The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing [1]  for the October – December 2020 and January – March 2021 quarters [2].  

  • During the October – December 2020 quarter, Treasury expects to borrow $617 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $800 billion.  The borrowing estimate is $599 billion lower than announced in August 2020.  The decrease in privately-held net marketable borrowing is primarily driven by a high beginning-of-October cash balance, [3] partially offset by assumptions for higher expenditures in new legislation. 
  • During the January – March 2021 quarter, Treasury expects to borrow $1.127 trillion in privately-held net marketable debt, assuming an end-of-March cash balance of $800 billion.

During the July – September 2020 quarter, Treasury borrowed $454 billion in privately-held net marketable debt and ended the quarter with a cash balance of $1.782 trillion.  In August 2020, Treasury estimated privately-held net marketable borrowing of $947 billion and assumed an end-of-September cash balance of $800 billion. The $493 billion decrease in borrowing resulted primarily from lower-than-assumed expenditures, partially offset by the increase in the cash balance.

Additional financing details relating to Treasury’s Quarterly Refunding will be released at 8:30 a.m. on Wednesday, November 4, 2020.


[1] Privately-held net marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve System Open Market Account (SOMA) but includes financing required due to SOMA redemptions. Secondary market purchases of Treasury securities by SOMA do not directly change net privately-held marketable borrowing but, all else equal, when the securities mature and assuming the Fed does not redeem any maturing securities, would increase the amount of cash raised for a given privately-held auction size by increasing the SOMA “add-on” amount. 

[2] In light of the significant uncertainty surrounding the fiscal impact of potential COVID-19 related legislation, we have maintained the prior quarter’s $1 trillion assumption noted in our August 3, 2020, borrowing estimate.  Actual borrowing may vary based on the fiscal impact of any new legislation.

[3]

###

Time to take a less emotional view toward government when analyzing its opportunities …

Editorial

The passage of time and the new technologies brought along with it have a way of distracting us from the fundamentals of government. This current presidential election provides an example of our expectations of government and its leaders. Americans expect government to deliver economic stability while government’s leaders exhibit a high degree of morality and good behavior. A lot of these expectations stem from what I believe to be a misreading of the U.S. Constitution and a failure to peel the layers of the “Madison Avenue” advertising campaign that hides the true intent of the human behavior that created the United States.

The “Madison Avenue” advertising campaign expressed in most American’s surface interpretation of the U.S. Constitution leaves Americans believing that government is supposed to be virtuous, moral, and caring of its people and that government’s leaders are also the citizenry’s leaders and these leaders are supposed to exhibit the high morals that ordinary citizens exchange among themselves.

This expectation of virtuous, moral behavior from elected officials is being expressed by a significant portion of the American electorate who believe that incumbent U.S. president Donald J. Trump is corrupt, contemptuous, and lies. Plenty of examples of less than becoming behavior and assertions of illegal activity have been shared via the media with a significant amount of these assertions and accusations stemming from Mr Trump’s prior life as a public citizen.

But even during his current tenure, Mr Trump’s detractors have argued that Mr Trump’s behavior rose to the level of impeachment and removal from office so much so that his opponents in the U.S. House of Representatives issued articles of impeachment against him last fall, pursuant to Article II, Section IV of the U.S. Constitution.

I think his detractors confuse Mr Trump’s puffery skills, skills no doubt honed as a marketer of everything from hotels to golf courses to casinos to pizza, with lies intended to cause physical, mental, or emotional damage. I personally do not see this as the case. While I would not pursue sitting down to a glass of beer with Mr Trump, spending precious moments dissecting salesman puffery is a waste of time. Detractors enjoy distracting the general public away from sources of information that would give better insights into what really matters in an American’s life: the ability to earn a living, obtain affordable housing, maintain the health and welfare of the household, and expand a moat of wealth around her household.

The distraction I am concerned about is the one that clouds government as a source of trade or contracts. Government after all is an amalgamation of rules and institutions that minimizes collateral damage that the citizenry may cause to government while government is carrying out its true role. One of government’s roles is to maintain an environment where it is easy to extract resources from human and natural resources in order for those who trade in this jurisdiction can earn revenues, profits, returns on and to capital.

Another government role is to inject public capital into the political economy. Government spends on procurement and research and development. It backstops business loans and student loans. Private companies receive billions in grant funding or loans to help carry out government’s social and economic policies.

Anyone watching the stock markets right now is aware of the volatility being caused by the uncertainty surrounding who will become the next president and more specifically their fiscal policy and regulatory proposals. Added to the puffery coming out of the White House, attempts by the Democratic-controlled House to keep the President in check, and the 3 November 2020 election quickly coming over the horizon, the focus needs to remain on what opportunities can be created or evaporated as a result of the election and where opportunities appear, how best can you position yourself to meet them.

The noise surrounding moral behavior in government and what political packages can a candidate offer you need to be cleaned up so that you can tune in to the economic opportunities that matter. Take, for example, the President’s alleged actions regarding Ukraine. One should leave the morality questions to the college philosophy professors or the unpaid political pundits that pervade social media and instead ask themselves the following questions when trying to identify an opportunity resulting from a government action:

  1. Is the government action legal?
  2. Does the government action create a government program or a fund?
  3. Do these programs allow for delivery by private entities?

If the action is legal there is a foundation upon which you can explore any contract opportunities with the government. You want to be sure a program won’t be yanked from under your feet because of legal issues.

If the government action creates a program, your concern should be the criteria you have to meet for participating as a service deliverer. If there is a fund made available as a result of the program, what then are the requirements for accessing this new public capital. Finally, if the government is creating programs that can be delivered by private entities, the government is providing you an opportunity to do business.

It is a waste to get caught up into political debate. Government is going nowhere. You should treat government as a public corporation that seeks to do business like any other corporation and make yourself available to provide it with services.

The COVID/AI Era of Law …

For five months now, the United States has been in lock-up.  One of the ugliest hashtags I have seen and heard used is #AloneTogether.  At first it reads like an oxymoron.  If we are alone, how can we be together.  It sounds like the status of the last few years of my first marriage.  Sharing space with an energy pulling against you is draining.

The COVID-19 pandemic may be casting a new meaning on that phrase.  If you have the misfortune of having to share more time in energy draining space with a spouse that you are considering divorcing, #AloneTogether may be the last rallying cry before calling a divorce attorney.

Technology may also impact how we view the phrase.  Zoom calls and TEAMS meetings are a growing part of the workplace lexicon.  The spaces that we enjoyed being alone in at home have become offices and digital conference rooms where everything from sales pitches to digital happy hours are taking place.

For the extra sensitive, walking down a sidewalk and observing people take the extra precaution of taking a wider berth around you while hindering their own breathing by wearing a mask can be disconcerting.  The slightest attempts at saying “hello” or “good morning” are increasingly avoided because of fear that the slightest exhale from a fellow human may lead to a 14-day quarantine or time in a hospital on a ventilator.

In theory, the state quasi-mandated environment of staying away from each other should result in a reduction in analog contacts as our world goes increasingly digital.  Hard for kids to get into school fights when kids are at home distance learning.  Tough to get in a shouting match with a restaurant cashier over an order when Uber Eats, Grub Hub, or Door Dash is picking up your food.

There will be controversies; they will continue.  We are humans, taking conflict to levels that exceed what other lifeforms endure.  Legal philosophy should have us asking “Why are we engaging?” or “What is engagement?”.  Society will have to come up with tweaks to the rules for human engagement in a digital age where a corona virus is forcing on a global scale the reconstruction of society.  Should judges have to consider new threshold principles before trying to apply statutes, laws, rules, code, from a pre-COVID, non-artificial intelligence world to an issue before them arising out of a digital environment?  Will we need a new definition for personal spaces? For zones of danger?

In the area of political law how we structure political engagement and eventually the rules for engagement are already taking on a new twist.  For example, the recent squabble in the United States over funding for the U.S. Postal Service appears to be a result of the controversy over the use of mail-in ballots and the possibility of mail fraud.  As I ponder these questions, I suspect that new legal principles will appear as COVID-19 continues to change how we address the question of whose rule should prevail during political conflict.