Month: July 2018

The end is near for those oh so frequent “will he, won’t he quit” rumors regarding White House chief of staff John Kelly.

Kelly told staff on Monday that President Trump had asked him to remain in his post through the 2020 election, a request that comes as tensions between the two men have eased in recent months, and that Kelly had agreed to the president’s request, the WSJ reported.

Kelly, who on Monday marked his one-year anniversary as chief of staff when he replaced Steve Bannon, has frequently been expected to leave the White House some time this summer. Ahead of the imminent departure, Trump has in recent months consulted with advisers about whom he should tap as his next chief of staff, with possible successors named as Nick Ayers, who serves as chief of staff to Vice President Mike Pence, and Mick Mulvaney, who heads the Office of Management and Budget and the CFPB.

As the WSJ adds, Kelly had told colleagues in recent months that he didn’t intend to stay in the role beyond his one-year mark, a position which Trump did not seem to mind. Which is why it is not clear what prompted Trump to have a change of heart, and request that Kelly remain until 2020.

The president has offered conflicting views in recent months on how long he sees Mr. Kelly staying on the job. After The Wall Street Journal reported last month that Mr. Trump was consulting with advisers on successors to Mr. Kelly, a White House spokeswoman called the report “fake news” and said Mr. Kelly said “this was news to him.”

Trump, asked later that same day whether Mr. Kelly was leaving the White House, replied: “That I don’t know.”

Amusingly, the WSJ notes that if Kelly stays in his post through 2020, he would be among the longest-serving White House chiefs of staff in U.S. history, which would be quite a U-turn for a president who infamously fired dozens of advisors and staffers in his first year. The longest serving chief of staff in U.S. history is John Steelman, who spent six years in the post under President Harry Truman.

That said, with Trump things are always “fluid” and the arrangement could change: “a White House official cautioned that while the plan is for Mr. Kelly to remain in his post through 2020, unforeseen circumstances could cause the plan to change.”

Kelly’s departure appeared near certain earlier this year, when Trump privately criticized his chief of staff for the handling of accusations of domestic assault against former staff secretary Rob Porter, who resigned in February after graphic photos emerged of the alleged abuse.

Kelly had initially defended Mr. Porter, vouching for his integrity publicly and privately. In his own public comments on the matter, Mr. Trump emphasized Mr. Porter’s denial of abuse without addressing his staff’s handling of the matter.

Trump on Monday tweeted a photo of himself with Mr. Kelly and wrote: “Congratulations to General John Kelly. Today we celebrate his first full year as @WhiteHouse Chief of Staff!”

Congratulations to General John Kelly. Today we celebrate his first full year as @WhiteHouse Chief of Staff! pic.twitter.com/JWCaJ3GhHV

— Donald J. Trump (@realDonaldTrump) July 30, 2018

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Facebook will announce on Tuesday afternoon that it has identified a “coordinated political influence campaign,” comprised of “dozens of inauthentic accounts and pages that are believed to be engaging in political activity ahead of November’s miderm elections,” reports the New York Times, citing three people briefed on the matter. 

While they aren’t sure it’s those pesky Russians, company officials told lawmakers that it might be. 

In a series of briefings on Capitol Hill this week, the company told lawmakers that it detected the influence campaign as part of its investigations into election interference. It has been unable to tie the accounts to Russia, whose Internet Research Agency was at the center of an indictment earlier this year for interfering in the 2016 election, but company officials told Capitol Hill that Russia was possibly involved, according to two of the officials. –New York Times

Facebook says it discovered “coordinated activity” promoting politically charged issues such as “Abolish ICE,” championed by Democratic Socialist Alexandria Ocasio-Cortez, as well as an upcoming sequel to last year’s “Unite the Right” rally in Charlottesville, VA. The Times notes that the efforts echo those in 2016 to stoke racial tensions surrounding the Black Lives Matter (BLM) movement. 

And according to Bloomberg, the social media giant removed a whopping 32 such accounts today, saving countless Americans from having their thoughts manipulated. 

In February, following the indictment of 13 Russian nationals and two businesses for election meddling (one of which has shown up in US court to fight), Facebook VP of advertising, Rob Goldman pointed out that the majority of advertising purchased by Russians on Facebook occurred after the election – and was designed to “sow discord and divide Americans”, something which Americans have been quite adept at doing on their own ever since the Fed decided to unleash a record class, wealth, income divide by keeping capital markets artificially afloat at any cost.

Most of the coverage of Russian meddling involves their attempt to effect the outcome of the 2016 US election. I have seen all of the Russian ads and I can say very definitively that swaying the election was *NOT* the main goal.

— Rob Goldman (@robjective) February 17, 2018

The majority of the Russian ad spend happened AFTER the election. We shared that fact, but very few outlets have covered it because it doesn’t align with the main media narrative of Tump and the election. https://t.co/2dL8Kh0hof

— Rob Goldman (@robjective) February 17, 2018

And while Goldman was smited by his tech overlords and forced to retract his claim that swaying the election was *not* the main goal, President Trump happily used it to his advantage.

The Fake News Media never fails. Hard to ignore this fact from the Vice President of Facebook Ads, Rob Goldman! https://t.co/XGC7ynZwYJ

— Donald J. Trump (@realDonaldTrump) February 17, 2018

Facebook’s army of arbiters

In order to combat the “discord” allegedly sewn by Russians, most of which happened after the election, Facebook has hired a fleet of people to review content, added to its security team, hired counterterrorism experts and recruited workers with government security clearances. 

They’re also employing artificial intelligence to detect automated accounts and suspicious election-related activity. 

It has also tried to make it harder for Russian-style influence campaigns to use covert Facebook ads to sway public opinion, by requiring political advertisers in the United States to register with a domestic mailing address and by making all political ads visible in a public database. –New York Times

Facebook’s head of cybersecurity policy, Nathanial Gleicher, would not say whether they have found evidence of new Russian information campaigns. 

“We know that Russians and other bad actors are going to continue to try to abuse our platform — before the midterms, probably during the midterms, after the midterms, and around other events and elections,” Mr. Gleicher said. “We are continually looking for that type of activity, and as and when we find things, which we think is inevitable, we’ll notify law enforcement, and where we can, the public.”

“We think it’s inevitable that we will find evidence, and we will find other actors, whether these are from Russia, from other countries, or domestic actors that are looking to continue to try and abuse the platform,” Mr. Gleicher said.

In short, Facebook and other social media platforms are under tremendous pressure from lawmakers and their political comrades to ensure that evil foreign actors don’t influence hearts and minds in the upcoming midterms. Of course, it would be a shame if the free flow of genuine opinions was somehow destroyed in the process. 

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President Trump appeared to voice his opposition to 3-D printed guns being sold to the public, in a tweet this morning, saying that he had already spoken to the National Rifle Association about the issue and that it did not appear to make much sense…

I am looking into 3-D Plastic Guns being sold to the public. Already spoke to NRA, doesn’t seem to make much sense!

— Donald J. Trump (@realDonaldTrump) July 31, 2018

As The Daily Caller notes, the issue of 3-D printed guns has reached a fever pitch in recent days after a Texas non-profit organization won the right to post the plans for such weapons online for public consumption.

The downloadable plans range from rudimentary handguns to rifles similar to an AR-15. The plans can be used by anyone with a 3D printer and minimal outside materials to create an untraceable firearm.

A selection of 3-D printed gun files already available on the Defense Distributed website, Defcad.com.

Several states have intervened to ask the Trump administration to federally ban such firearms.

“These downloadable guns are unregistered and very difficult to detect, even with metal detectors, and will be available to anyone regardless of age, mental health or criminal history. If the Trump Administration won’t keep us safe, we will,” said Washington State Attorney General Bob Ferguson (D), who represents one of the eight states suing the Trump administration.

The fight over 3-D printed guns stems back to 2013 when the U.S. Department of State banned the Texas non-profit from posting plans for such firearms online because it was in violation of export control trade practices.

The non-profit argued that the ban stifled its freedom of speech and eventually forced the government to back down. The plans will be posted online Aug. 1.

As The Hill reports, Senate Minority Leader Charles Schumer chimed in, saying that Trump’s tweet was a display of “incompetence and dangerous governing.”

Your administration approved this. What kind of incompetence and dangerous governing is this?
And to check with the NRA? Holy moly. https://t.co/MyctYPoci0

— Chuck Schumer (@SenSchumer) July 31, 2018

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Authored by Wolf Richter via WolfStreet.com,

Use of this financial instrument has ballooned. No one knows to what extent because there’s no disclosure. But it was a “key contributor” to the sudden collapse of outsourcing giant Carillion.

As regulators and stiffed creditors were poking through the debris of collapsed outsourcing giant Carillion – once employing 43,000 people worldwide – they found that the UK company had hidden much of its debts. And Fitch Ratings warned that this “technique” – a “debt loophole” – may be “widespread” in the US and Europe.

Carillion provided services to governments. It didn’t manufacture anything, didn’t have a lot of assets, and didn’t have a lot of debt – at least not disclosed on its books. Net debt on its balance sheet amounted to £219 million. But Fitch estimates that it had an additional financial debt of £400 million to £500 million.

This debt was hidden by a “technique commonly referred to as reverse factoring,” Fitch says. And it was “a key contributor to Carillion’s liquidation.”

This “reverse factoring” – part of supply chain financing – allowed Carillion to hide a debt of £400 million to £500 million in “other payables,” such as money owed suppliers. There were indications that something was off: Over a four-year period, “other payables” had nearly tripled, from £263 million to £761 million. According to Fitch, “This appears largely to have been the result of a reverse factoring program.”

But this was financial debt owed to banks – not trade accounts payable.

Any disclosure?

Almost none. Fitch explained in the report (press release here):

There was one passing reference to the company’s early payment program in the non-financial section of the accounts, but nothing in the audited financial statements and no numbers.

The only clue to the scale of the supply chain financing was the growth in “other payables,” the implications of which do not appear to have been appreciated by many in Carillion’s broader stakeholder group.

Carillion was no exception. Disclosure rules are “complex” and “highly dependent on specific circumstances, auditor, and jurisdiction,” Fitch says:

Promotional literature in the field regularly cites as a benefit the fact that supply chain financing – and reverse factoring in particular – can be shown as accounts payable rather than debt. Companies borrow cash while avoiding its inclusion in financial covenants or debt reported on the balance sheet.

A review of a number of companies with supply chain financing program shows precious little by way of disclosure.

Reverse factoring programs are aggressively marketed by banks and specialized financial institutions in the supply chain finance industry. And this lack of disclosure requirements is one of the key selling points.

How much reverse factoring is going on?

“We believe the magnitude of this unreported debt-like financing could be considerable in individual cases and may have negative credit implications,” Fitch says. But due to lacking disclosures, no one knows the magnitude.

Greensil, which provides supply-chain financing and claims to have financed $30 billion to date, estimates in its promotional literature that about $3.5 trillion globally is tied up in working capital. But not all of it can be leveraged in supply-chain finance.

Fitch tried to estimate if “reverse factoring” is increasing. It looked at a sample of 337 companies and found that the metric “payable days” – the average number of days companies were stringing out their suppliers – had grown by 17% since 2014, to 96 days in 2017.  Fitch believes that in 2017 alone, payables days rose 6%.

“Assuming all of this increase was reverse factoring, then this could be as much as $327 billion additional reverse factoring since 2014” among the 337 companies, Fitch said. That’s an average increase of about $1 billion per company in the sample.

But not all of this growth is reverse factoring. Other dynamics play a role too, including the “ongoing cash management efforts by the companies in the sample, with supplier terms being squeezed.”  But due to lacking disclosures, it’s “impossible for a third party to tell one way or another.”

How does reverse factoring work?

Supply chain finance in general describes working capital management techniques with which a company extracts financial benefits from its supply chain. The “most publicized” of these techniques is reverse factoring. Fitch explains how it works and the reasons for doing it:

Company A, the buyer, purchases goods in the normal course of business from company B [often not rated or junk rated]. Company A, typically a large well-rated corporate, will arrange a reverse factoring program with a financial institution.

Once it has been on-boarded into the program and negotiated terms with the bank, B will be able to submit the invoices it has issued to A, once A has validated (or confirmed) them, to the bank for accelerated payment. It could get paid after 15 days rather than its usual 60 days.

The supplier benefits because it gets quicker access to cash but at the lower borrowing cost associated with the stronger credit rating of its customer.

The buyer benefits because reverse factoring allows it to borrow without disclosing it as debt:

As part of this process, the bank will also often allow company A longer to pay the invoice than B would have accepted without the supply chain finance arrangement. So rather than paying in 60 days it may pay only after 120 days. This is effectively using a bank to extend payment terms….

Thus, the buyer is borrowing 120 days of its accounts payable from the bank, while the bank pays the supplier. None of this debt that the buyer owes the bank shows up as “debt” on the buyer’s balance sheet but remains in “accounts payable” or “other payables.” The money borrowed from the bank becomes cash inflow on the cash-flow statement. And the highly touted figure “cash” increases. Hallelujah.

How does Fitch treat reverse factoring — if it’s disclosed?

If a company provides “sufficient and reliably consistent disclosure,” Fitch adds the dollar amount resulting from an extension in “payable days” – for example from 60 days to 180 days – to the amount of the debt.

If the buyer has $100 million in unpaid invoices after an extension of payables days from 60 days to 180 days, Fitch assumes that 120 days of that outstanding invoice amount, or 66.7%, is due to a reverse factoring program. It would therefore treat $66.7 million of that $100 million as financial debt, rather than trade payables, and adjust its credit metrics accordingly.

But that increase in financial debt might put the buyer in violation of its debt covenants or impact negatively other credit metrics that would increase its costs of borrowing. Hence, this “sufficient and reliably consistent disclosure” is precisely what few companies do. And this financial debt remains hidden in trade accounts payable.

Creditors and shareholders are at risk without knowing it – see Carillion

The fact that this financial debt is not disclosed, “combined with the potentially serious consequences where companies’ use of factoring programs goes unnoticed, is cause for concern,” Fitch says tersely.

“As seen in the case of Carillion, reverse factoring could have a potentially large impact on vulnerability to default for specific issuers, making awareness critical.”

Cash obtained via reverse factoring is particularly fragile because when this company gets into financial distress, the bank simple cancels the reverse factoring program, and the company will have to come up with funding to pay down its accounts payable to the terms agreed to with suppliers.

To use our example above, the buyer would have to come up with $66.7 million to pay down its payables from 180 days to 60 days – and this would happen as the buyer is already under financial stress, just when it can no longer borrow money at survivable rates. This is how reverse factoring increases the likelihood of a sudden default and Carillion-style collapse.

“Sectors that are large users of reverse factoring include consumer packaged goods, telecommunications, chemicals, retail, and aerospace,” Fitch says.

GM, Fiat Chrysler, and Ford all got ugly in unison, in one day, something we haven’t seen since the Financial Crisis. Read…  Carmageddon in Detroit  

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Back in the heyday of the Fed’s QE, it had become a trader mantra: buy stocks on POMO days, or when the Fed was actively purchasing bonds in the open market, and generate risk-free, outsized returns. It got to the point where even Goldman advised its clients to frontrun the Fed, as we documented back in October 2010, when  Goldman’s trading desk sent out the following note.

On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%.  in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%.  the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market’s performance on the 19 non-OMO days: +70bps.

Many years later, POMO is long forgotten (at least until Trump forces the Fed to relaunch POMO after the next market crash) and instead of Quantiative Easing we have Quantiative Tightening. But unlike back then, few traders care about days when the Fed’s balance sheet shrinks, or anti-POMO.

That may soon change.

As Nomura’s rates strategist George Goncalves writes, “for years macro-mavens the world over would track the size of the Fed’s balance sheet vs equities (notably the SP500 index) to draw the comparison that QE policy was driving stock markets upwards.”

Obviously there was more to it than just “the Fed is driving money into risk assets” but the added liquidity of buying MBS/USTs helped cure other assets from the financial crisis overhang through the “portfolio rebalancing effect.”

Fast forward to the present, in the QT world the reduction of the Fed’s balance sheet has not resulted in as clean of an analogy or connection to risk assets, or anti-POMO. Perhaps because no clear correlation has emerged yet: after all, the Fed’s portfolio has already shrunk by roughly $200bn, while the SP500 market capitalization is up over $2trn.

To be sure, it’s quite possible that the Fed’s QT has been offset by other major CBs that are still easing. That plus financial engineering (stock buybacks) have eased the drag of QT.

However, with the Fed’s balance sheet unwind accelerating, it may be just a matter of time before the Fed’s liquidity absorption becomes the dominante force in the market. As Goncalves writes, “QT-caps max out in 4Q18 so the jury is still out.”

So to give a sense of what the underlying market micro-structure dynamics may be, the Nomura rates strategist reviews the recent QT-unwinds as well as market reactions that have occurred on unwind days. Most of the recent weekly declines in the size of Fed’s SOMA holdings have been relatively small. However, as notes that “the largest drop to date happened around the February market correction. October could see another sizeable drop in SOMA, which could point to market volatility around this period.“

First, the basics:

The Fed’s QT-caps – in regards to its reinvestments of MBS and USTs – are set at $16bn and $24bn, respectively in the third quarter. Starting October, the MBS and UST caps move to $20bn and $30bn, respectively and peak at a total $50 billion going forward. We are in the peak period of sizeable reductions. When viewed from afar, the Fed’s balance sheet looks as if it’s grinding lower in a linear downward fashion. However, up close we can see that the reductions vary by product and timing of the month, or as Goncalves notes, “we can describe the Fed’s balance sheet as being shrunk in “chunks” at a time.“

In the chart below, we can see the weekly changes of the Fed’s balance sheet (B/S) vs equity returns. Although the QT-caps have increased over time, the actual biggest weekly B/S decline (over $20bn) took place on 31 Jan 2018, one week before the major equity declines of the year and the historic spike in vol.

What was unique about February was that both UST and MBS holdings (Fig 2) declined during the same QT-unwind week. And with larger caps ahead, the likelihood that some of the weekly QT-unwinds are super-sized increases too, according to Nomura.

Next, Nomura does some statistical backtesting to see if a pattern emerges:

Figs 1 and 2 demonstrate the visual correlation of equity market returns to QT-unwind weeks; however, the most glaring episode was in late January/early February, which saw both the Fed’s MBS and UST shrink over the last weekly period. In late April there was a large UST-only maturity week (nearly $18bn, where data are reflected as of Wed 2 May); however, it barely moved market valuations, whereas in late June there was another UST-only reduction of $18bn (but in that period stocks declined). There were other factors at work then (market concerns over tariffs, etc) so we would not strictly rely on this sort of analysis for gauging future market movements. That said, in Figs 3, 4 and 6 we highlight that when there is a MBS or MBS/UST QT-unwind week, those periods on average see larger moves, in particular to the downside for broader risk assets.

And while there does appear to be some “signal” when looking at past correlations between Fed unwind and market returns, as a result of the “noisy” changing size of the unwinds, it is difficult to reach a specific conclusion. Still, the inference that the market is extra jittery on days when the Fed yanks tens of billions in liquidity is intuitive and a logical extension of the “POMO effect.”

So how is this information actionable?

Simple: if one knows on what days the Fed will be rolling-off substantial amounts of debt, one can bet on a downward drift in risk assets as a result of the liquidity shrinkage. To facilitate this, Nomura has counted the total number of weekly reinvestment and roll-off periods that have transpired and are still projected to occur ahead, where it counts the number of occurrences based total balance sheet size changes (as seen from the chart, they are still reinvesting sizeable amounts).

The first observation is that the majority of the weekly changes, or anti-POMOs, are sized between positive $5bn to negative $10bn. The second key finding is that there has only been one week of greater than $20bn reduction thus far – just days before the February VIXtermination event that sent the S&P on the verge of a 10% correction. However, looking ahead there are more than 11 occurrences that are even larger.

In other words, on days when the Fed removes sizable amounts of liquidity: $20BN or more, there is a distinct possibility that the market reaction would be similar to what was observed on February 5.

Still, Nomura again hedges, and writes that: 

“given there has only been a handful of key SOMA QT-unwind weeks that have led to market corrections, we cannot definitively state that SOMA swings will always lead to market sways.”

Well, maybe not always, but certainly on days when there is a substantial weekly roll-off, the risks grow significantly.

And, here we get to the punchline, because according to Goncalves, the next large QT-weekly reduction ironically enough is happening smack in the middle of this action-packed week, when on 1 Aug the Fed’s UST holdings will decline by $24bn, the same day that the Fed’s announcement may exacerbate already shrunken liquidity conditions, and add to the market’s fragility.

Then again, maybe nothing happens tomorrow, and stocks will somehow manage to levitate, either on a short squeeze or after Powell surprises to the dovish side. Which is why, Goncalves notes that if markets do come under pressure, it would be easy to dismiss this occurrence. However, things get more exciting later on in the year, especially since as Nomura writes, “our findings show that the more important QT-weeks are when both UST and MBS roll-off. That happens to be in a category 3 week, concluding during the week of 31 Oct.“

If Nomura is correct, and a market “event” occurs then, it would come at a very unpleasant time for Donald Trump: just as the BEA announces Q3 GDP which, by most estimates, will be a sharp drop from the stellar Q2 print, but more importantly, a Fed-orchestrated crash would happen just days before the midterm elections.

And it Trump needed a reason to launch all out war against the Fed – something he has already hinted at on several occasions – the GOP losing control over Congress as a result of what Trump may come to see as a Fed action, will assure that the war Fed between Trump and Powell escalates into a bloody, deadly spectacle the likes of which have never been seen before.

* * *

For reference, here is Fed’s complete QT calendar until the end of the 2019.

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Attorney and legal analyst Jonathan Turley has weighed in on Paul Manafort’s fate, as the first of two trials against the former Trump campaign aide gets underway in Virginia on Monday. Turley suggests that Manafort is “in the worst possible legal position” of having to “run the tables” – beating all 18 counts in his Virginia trial, as well as seven counts in his D.C. trial, while trying Mueller’s team will probably point out that he’s a multimillionaire Washington lobbyist that a jury is unlikely to identify with.

That said, there are many considerations to take into account which Turley describes – including the possibility of a presidential pardon, however if you want to know precisely how screwed Manafort is, read on: 

Authored by Jonathan Turley via The Hill

Paul Manafort gambles against all odds at trial

Hunter Thompson once decried the fleeting fortunes of gamblers as “tomorrow’s blinking toads, dumb beasts with no hope.” Paul Manafort is about to discover if he is one of those “blinking toads.” The trial of the former Trump presidential campaign chairman in Virginia, on more than a dozen criminal counts of tax fraud, bank fraud and reporting violations, is about to begin. Rather than take a plea, Manafort has taken the gamble of a trial and the lingering chance of a pardon.

Manafort is in the worst possible legal position of having to “run the tables” by not only beating 18 counts in Virginia but then beating seven counts in a separate trial in Washington. He needs a sweep or nothing. That is quite a gamble and, frankly, Manafort is a bad bet. While he needs to beat all the charges, special counsel Robert Mueller needs only one conviction on one count to put Manafort away for as much as a decade.

That is what it means to “play the house.” The house usually wins. Right now, Las Vegas would give Manafort about the same odds of acquittal as it would give the Baltimore Orioles to win the World Series. Indeed, the one thing the Orioles, ranked worst in the MLB, have going for them is that people actually want them to win. That is not the case with Manafort, and that lack of empathy is likely to grow considerably in coming weeks with the expected witnesses at his trial.

The first challenge for the defense is that Manafort can be easily painted as someone who made millions off some of the world’s most disreputable characters. The more that jurors learn of Manafort, the less likely they are to find him relatable or likable. To the contrary, his lifestyle will place a wide social and economic chasm between him and the jury. That is by design, as prosecutors know his lifestyle could leave jurors less inclined to give him the benefit of any doubt.

For that reason, they intend to call a myriad of minor witnesses, from a ticket vendor for the New York Yankees to a high-end tailor to a Mercedes Benz salesman. Jurors will hear about his six homes, $2 million worth of antiques, a $500,000 landscaping bill, the two silk rugs costing $160,000, and almost $1.5 million in clothes for himself. All of this is part of a lifestyle that seemed to be collapsing under its own weight, necessitating the alleged fraudulent efforts to secure nearly $25 million in bank loans.

This type of evidence invites class resentment and an unconscious desire to see an elitist fall. The legal chasm may be equally challenging. Jurors will be buried in a mountain of transactional and bank documents from numerous countries. Manafort is accused of hiding $30 million to evade U.S. taxes by using accounts in the United Kingdom, Cyprus and the Caribbean island nation of Saint Vincent and the Grenadines. Prosecutors claim he may have made more than $60 million in working for Ukrainian interests.

With multiple counts and such a daunting record, a jury often inclines to rely on prosecution witnesses. In this case, the witnesses will include Manafort’s former aide and confidant, Rick Gates. The combination of a less than sympathetic defendant, a tower of financial documents and a flipped former associate makes conviction on at least some of these counts a high likelihood. So why hasn’t Manafort sought a deal with Mueller? Well, several possible reasons exist.

First, Mueller might be a bit short on mercy. He is unlikely to cut a deal with Manafort that did not involve pleading guilty to at least one count. Mueller would have to clear counts in both Washington, D.C., and Virginia, and that could not be done easily with a walk-away plea. Any plea likely would put Manafort behind bars for years. At age 69, a 10-year sentence could be the same as life in prison. Moreover, most of these counts would run concurrently so, while even one conviction is enough to hold him for much of his remaining years, Manafort may not find a deal as attractive.

Second, unlike former Trump attorney Michael Cohen, Manafort still has hope for a pardon. If President Trump were to go nuclear in shutting down the investigation, he likely would issue a slew of pardons. At this point, he is more likely to pardon Hillary Clinton than Cohen, but Manafort has remained loyal and silent.

Finally, just as Mueller might not be able to give Manafort what he needs, Manafort might not have enough to offer Mueller. The problem with being the matinee defendant for the special counsel investigation is that a plea bargain is more costly to secure. Manafort would need deliverables on Trump, and he may not have them. Short of a quid pro quo understanding with the Russians, or confirmation of the president’s knowledge of the Trump Tower meeting with Russians that implicates Donald Trump Jr. and others, Manafort may not have a deliverable.

Trump was not known to be close to Manafort, though they had interactions going back years. In other words, Manafort may not have a “get out of jail” card to use against Trump or key figures. For any of these reasons, Manafort may simply view a deal as offering too little and risking too much. Conversely, a pardon could mean no jail time and a clean slate.

If Mueller convicts Manafort, it is likely to be celebrated as proof of the legitimacy of the special counsel investigation. In truth, it is not. Manafort’s charges have nothing to do with Mueller’s original mandate involving Russian collusion, obstruction, or any of the allegations directed against the president. That does not make Manafort innocent, but this was not the game Mueller was supposed to be playing.

Manafort still has a defense to present, so it is too early to declare him a loser. However, he is taking a gamble in not taking a plea. In playing against the house, his odds at trial are long and, if he ever comes up for sentencing, his credit is short.

Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. You can follow him on Twitter @JonathanTurley.

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