Month: January 2021

More on Impeachment Trials of Former Officials

Thursday, Senator Mike Lee, himself an accomplished lawyer, published an op-ed concluding,

Although it is a close question, and the relevant constitutional text is susceptible to multiple interpretations, the most natural reading leads me to conclude that the Senate should not conduct an impeachment trial where, as we are facing today, the person impeached is no longer in office.

Article 1, Section 3, Clause 6 provides that “when the President of the United States is tried, the Chief Justice shall preside.” And Article 2, Section 4 mirrors this formulation, stating that only the “president, Vice President, and all civil Officers of the United States” may be impeached.

These sections do not say that “a” president or “a former president” or “anyone who has served in that office” may be impeached. It says “the” president. There is a difference between “the” president and “a” president, and there can be no dispute that “the” president is not Donald Trump but Joe Biden. The former remained in office, and on that basis, was subject to impeachment until noon on Jan. 20, 2021. The latter was not subject to impeachment until that very same moment but now is.

Our own Prof. Eugene Kontorovich (George Mason) also published an op-ed Friday reaching the same conclusion (I hope he’ll post an excerpt from it himself later today), and Prof. Philip Bobbitt (Columbia) had a similar post Wednesday at Lawfare, which begins:

Donald Trump deserves punishment for the long campaign to discredit the results of the 2020 election that culminated in his inciting the Jan. 6 attack on Congress and the Capitol. Nevertheless, the Senate is making a mistake in holding a trial of the article of impeachment, which is scheduled to begin the week of Feb. 8, after the president leaves office. Doing so subverts the law in an effort to punish someone who subverted the law.

On the other hand, back in 2001, Prof. Brian Kalt (Michigan State) presciently wrote a whole law review article on the issue, The Constitutional Case for the Impeachability of Former Federal Officials: An Analysis of the Law, History, and Practice of Late Impeachment, which makes me especially pleased to pass along his response to Sen. Lee’s op-ed (I would have happily posted the entirety of Sen. Lee’s op-ed as well, but was reluctant to do that, given that it had already been published elsewhere):

Sen. Lee starts by saying that Article II, § 4 “stat[es] that only the ‘president, Vice President, and all civil Officers of the United States’ may be impeached.” (That’s not what § 4 states, to be precise, but it can be interpreted this way.) Lee contends that this means only “the” president may be impeached, not anyone who was ever president. But Donald Trump was president when the House impeached him on January 13. Lee does not—and cannot—argue that the House lacked the power to do this. And Article I, § 3, cl. 6 gives the Senate exclusive power to “try all impeachments,” without saying anything to restrict the timing of the trial. Lee does not address this either. More broadly, he does not engage the distinction between the timing of the offense and the timing of the trial.

He also ignores evidence other places that the Constitution regulates the possible consequences of officials’ actions. There too, the key is that the official was in office at the time of the offense, not at the time of the trial. For instance, the Speech and Debate Clause makes “senators and representatives” legally immune for their legislative acts—a protection that covers ex-senators and ex-representatives for acts they performed in office. Similarly, “members” can be punished by each house for disorderly behavior, and this power has been used to punish ex-members for things they did as members.

Lee next turns to Article I, § 3, cl. 7, which says that impeachment judgments “shall not extend further than to removal from office, and disqualification to hold [future office].” Lee says: “I read this clause—in particular, the use of the conjunctive ‘and’ rather than the disjunctive ‘or’—to establish removal as a condition precedent to the remedy of disqualification. If a public official is subject to removal through the impeachment process, then he or she is subject to disqualification. If not, then the opposite is true.”

Don’t be thrown off by the lawyerly lingo of conjunctive, disjunctive, and conditions precedent; just read the clause. It provides an outer limit for impeachment consequences: the Senate can’t go further than X-plus-Y. The point of the clause is that Senate cannot do Z, not that it must do X before it can do Y. (Separately, Article II, § 4 requires removal when applicable, though Lee does not mention that. In any case, that requirement is best read as keeping convicts out of office, not as protecting offenders from disqualification if they leave office first.)

The correct reading of Clause 7 becomes even more obvious when one looks at the whole clause. The clause’s second half, which Lee omits, provides that impeachment convicts are still subject to whatever consequences the criminal law might dole out. This was a departure from British impeachment, in which impeachment cases were not separated from the criminal process in this way. In Britain, impeachment could result in the full range of criminal punishments. The American version needed to make clear that only removal and disqualification could be leveled; fines, prison, or death would not be on the table.

Lee’s venture into constitutional history is short. He says that the Framers “chose a design that was different than the English impeachment system, under which any private citizen could be impeached.” But this is still a non sequitur, given that Trump was impeached when he was president, for his actions as president. And it ignores the practice of states. Around the time the Constitution was drafted and shortly afterwards, multiple states impeached and convicted ex-officials for things they had done in office. Some did so on the basis of state constitutional language that tracked the federal constitution. The Framers understood this possibility and did not explicitly exclude it.

While removal was important, the Framers also intended impeachment to serve other functions. Impeachment would also deter public misconduct and, failing that, provide a forum to investigate perpetrators and hold them accountable. It would be odd if the Framers designed the impeachment system so that deterrence and accountability were no longer an option in the final weeks of a president’s term. Indeed, it’s hard to imagine Senator Lee refusing to try a Democratic president impeached in his last week in office for, say, granting a mass pardon to all Antifa members. But these structural considerations are absent from his discussion.

Finally, Lee considers two precedents. He points to how the Senate dismissed the impeachment case against ex-Senator Blount in 1798—but skips over all evidence that the dismissal was because of the “senator” part and not the “ex” part.

Next is the impeachment and trial of ex-secretary of war William Belknap in 1876. Lee admits that the Senate voted in favor of jurisdiction, but stresses that Belknap was ultimately acquitted. Lee is right that Belknap’s acquittal does weaken the precedent somewhat, but he ignores that Belknap, unlike Trump, had left office before even being impeached—and thus that the case for jurisdiction in Trump’s case is stronger.

Lee also leaves out some interesting partisan dynamics. The Republican Belknap was impeached unanimously by the House despite having already left office. Republicans had a solid majority in the Senate and a party-line vote would have been strongly against jurisdiction. But rather than toss the case, the Republican Senate held a serious, month-long debate. In the end, 13 of the 39 Republicans senators voted that there was jurisdiction, and the trial proceeded for two more months.

It is unlikely that the Senate will have a similarly serious debate this time. It is also unlikely that a similar proportion of Republicans will vote against their partisan interest. But it is worth noting that if they did, that same proportion (when rounded) would yield 17 Republican votes today—exactly the number needed to attain a two-thirds majority to convict.

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The Constitutional Case Against Retroactive Impeachment

From my Newsweek op-ed Friday:

The second impeachment of Donald Trump raises an important constitutional question that no court has yet addressed—whether the Constitution’s impeachment provisions apply not just to sitting officials, but to former ones.

The Constitution provides that the impeachment process shall apply to “all civil Officers of the United States,” suggesting that those subject to it must actually hold office. But the possible trial of Trump has generated a swirl of arguments to the contrary. Last week, more than 150 law professors signed a letter arguing that even private citizens who had once held office may be impeached and then tried by the Senate. Perhaps influenced by such academic authority, this week the Senate rejected by a 55-45 margin a resolution concluding that such a trial would be unconstitutional. The arguments in favor of impeaching former officials are weak—and those to the contrary is at least compelling enough to not deprive a private citizen of his right to a jury trial.

Supporters of after-office impeachment have attempted to point to historical precedents—but there are no such precedents. In the 230-year history of the U.S. Constitution, there have been zero impeachments or trials of former presidents, and only one of any former “civil officer”—145 years ago.

Historical practice can be a guide to understanding the Constitution, but the Supreme Court has held that it takes a lot more than an isolated historical episode to show that something is constitutionally acceptable. Moreover, there is no reason to ignore the glaring lack of impeachments of the countless former office holders who may have deserved it. Indeed, since government officials spend more time out of office than in it, if subsequent impeachment were constitutional, one would expect to see it more often than impeachment of sitting officials.

The primary argument in favor of using the impeachment process against former office holders is policy-based. Because the sanction of being barred from office can only be applied after a Senate conviction, an official could “undermine” the impeachment mechanism “simply by resigning one minute before the Senate’s final conviction vote.” Yet a last-minute resignation is far from an avoidance of accountability. Resignation removes the official, and does so more surely than a Senate trial. As can be seen in the case of Richard Nixon, it does little or nothing to remove the public stain of impeachment proceedings, which the Framers recognized was perhaps their greatest effect. Moreover, in the case of presidents, leaving office immediately opens them up to criminal prosecution.

While barring someone from office is one of the punishments available in impeachment, nothing suggests it is so essential, or the strategic resignation scenario so likely, that being able to pursue people when out of office is essential to the impeachment power. It would be like prosecuting dead people for crimes, and punishing their estates with fines, because otherwise people could “escape accountability” by committing suicide.

Conjuring up the exceedingly speculative case of an office holder who resigns from office “one minute” before a conviction only highlights how far-fetched the broader argument is. Even if concern about strategic resignation were valid, it would not mean that the Senate should be able to try people who did not resign to avoid responsibility. Trump left office not through any gamesmanship, but at the natural end of his term. It was the Senate, not Trump, that strategically choose to delay the start of the process until he left office.

Read the rest of the op-ed at this link.

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The Only Way To Win Is Not To Play

The Only Way To Win Is Not To Play

Authored by Joakim Book via The American Institute for Economic Research,

When the melting pot has stopped melting and started stirring, you need to try something else. America was always the land of opportunity, where working hard meant getting ahead and doing well was not just allowed but encouraged. Where you could mind your own business and where your right to believe the craziest of things was routinely accepted and then overlooked in service of more worldly things. From Disneyland to massive film festivals to setting up crazy cities in the desert, the American way was to cherish diversity and independence: the ability ‒ right, even ‒ for everyone to do their thing. 

Or so it told itself. 

Now, however, something seems broken ‒ and I’m certainly not the first to point that out. Many clashes at dinner tables and arguments in the living room have exposed the rifts between people: over politics, over the ruling of the country, over health care and who ought to pay for it, over how the pandemic changed people’s lives and how we ought to behave in this strange new world. The particular American fight over masks ‒ wearing them or not? Do they work or not? ‒ became an illustrating symbol that signalled righteousness or deviance, loyalty to the establishment and others’ well-being or a hatred for the same. 

The personal became incredibly political. 

In an age just slowly adjusting to how megaphone-esque social media landscapes alter our behavior, perception and understanding of our fellow humans, no personal stone seemed unturned. The political parties have noticeably become more hostile towards, as well as moving ideologically away from each other. Somewhere between one-sixth and one-third of Republicans and Democrats alike report that they would be upset if their child married someone from the opposite party. Perhaps there was always some resentment for political opponents, but it seems on display and on a magnitude not previously seen. 

The pandemic, both through its invasive political policies and behavior among people, is only the tip of this collapsing iceberg, where everyone’s business is everyone else’s to meddle with. Where your ideological or political persuasion is a moral failure subjecting you to an endless amount of scorn, hatred, and even violence. 

We see it in our families, where everyone now has political rifts; we see it in our dating life, where sorting according to partisanship is increasingly a thing; we most certainly see it among friends that can no longer put politics aside and even break friendships because you voted for the wrong ruler or wore (or didn’t wear) the wrong piece of cloth before your face. In the workplace, you better sign off on the correct values or see your employment at risk.  

Increasingly, like media commentators left and right have sputtered for years, Americans live in isolated informational bubbles. They literally don’t see the same reality; they misinterpret facts presented to them according to partisan convictions. A longstanding result in psychology is that intelligence does not help to offset this: the smarter one is, the clever ways one finds to spin factual results and arguments in buttressing one’s own already-established opinion. 

The British journalist Douglas Murray in The Madness of Crowds: Gender, Race and Identity reflects a lot on this inability to value discourse and disagreement. Reflecting on the widening chasms in British and American political life, he writes that to live together 

“[W]e have to find some way to get along together. It is the only option we have because otherwise, if we have come to the conclusion that talking and listening respectfully are futile, the only tool left for us is violence.” 

For years before the January “Storming of the U.S. Capitol,” Murray ‒ and many others with him ‒ have warned about the dangers of politicizing life and staking moral and social triumph on whoever sits in the White House or runs Westminster. While the protests and the event itself was unexpected, nobody is really surprised that it happened. This is what political life has come to ‒ under a large and powerful government, I might add.  

It’s easy to file the storming under “crazy right-wingers” or boiling fascist tendencies of all Republicans, but that’s a mistake. Had the November election gone differently, very few of the societal wounds that have opened during the 2010s would have closed. Nothing would have been better and a number of things probably worse. 

But it was Trump supporters who stormed the Capitol and put our grand democracy at risk, you might say. Yes, but had the election gone only slightly different and the shoe been on the other foot, we would most likely have seen Democratic supporters storming the Capitol, preventing what they saw as an unlawful power grab. 

Don’t believe me? According to a number of surveys done by political scientists Nathan Kalmoe and Lilliana Mason well before the November election, a higher proportion of left-wing voters (18%) than right-wing voters (14%) said that violence was justified in case of an unfavorable outcome in the Presidential election in 2020. Even more scary than a fringe for whom violence isn’t a barrier is that much larger shares of partisan crowds view their opponents as “downright evil.”

Considering how much moral fire was received by everyone even remotely connected to the right for the protests in early January, that forces us to scale back our moral condemnation. In an alternate universe where Trump had won, my guess is that we’d be in exactly the same situation, with a uniquely disliked President and an unruly population and a society at odds with itself ‒ and a violent attack on some public institution attempting to reverse the result.  

At some point of societal schism, there is no way back. Perhaps we’re not there yet and perhaps we can still mend the wounds of the last few decades. I keep wondering that maybe, just maybe, some part of the extreme right-wing segregationist claims have merit. If it’s unthinkable for you to live alongside someone of the wrong class, sex, religion, race, or political persuasion… perhaps you shouldn’t. Perhaps then, dividing, separating, or even seceding is the only solution. 

Ignoring one another is a peaceful way of coexisting; Not interacting is a viable solution unless we’re forced to do so through a one-size-fits-all political process. Playing the political game makes it worse, and the collapse of personal grand narratives have let politics substitute for every other desire we have.  

We could decentralize political power, have people self-select into what sort of governance and/or people they wish to live with, and we can peacefully separate instead of violently combat one another.  After the year we’ve had ‒ Trump, Trump, Anger, Pandemic, Lockdown, BLM, Election, Coup ‒ does anyone still think that living apart from one another is such a bad idea?

Tyler Durden
Sun, 01/31/2021 – 15:20

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More on Impeachment Trials of Former Officials

Thursday, Senator Mike Lee, himself an accomplished lawyer, published an op-ed concluding,

Although it is a close question, and the relevant constitutional text is susceptible to multiple interpretations, the most natural reading leads me to conclude that the Senate should not conduct an impeachment trial where, as we are facing today, the person impeached is no longer in office.

Article 1, Section 3, Clause 6 provides that “when the President of the United States is tried, the Chief Justice shall preside.” And Article 2, Section 4 mirrors this formulation, stating that only the “president, Vice President, and all civil Officers of the United States” may be impeached.

These sections do not say that “a” president or “a former president” or “anyone who has served in that office” may be impeached. It says “the” president. There is a difference between “the” president and “a” president, and there can be no dispute that “the” president is not Donald Trump but Joe Biden. The former remained in office, and on that basis, was subject to impeachment until noon on Jan. 20, 2021. The latter was not subject to impeachment until that very same moment but now is.

Our own Prof. Eugene Kontorovich (George Mason) also published an op-ed Friday reaching the same conclusion (I hope he’ll post an excerpt from it himself later today), and Prof. Philip Bobbitt (Columbia) had a similar post Wednesday at Lawfare, which begins:

Donald Trump deserves punishment for the long campaign to discredit the results of the 2020 election that culminated in his inciting the Jan. 6 attack on Congress and the Capitol. Nevertheless, the Senate is making a mistake in holding a trial of the article of impeachment, which is scheduled to begin the week of Feb. 8, after the president leaves office. Doing so subverts the law in an effort to punish someone who subverted the law.

On the other hand, back in 2001, Prof. Brian Kalt (Michigan State) presciently wrote a whole law review article on the issue, The Constitutional Case for the Impeachability of Former Federal Officials: An Analysis of the Law, History, and Practice of Late Impeachment, which makes me especially pleased to pass along his response to Sen. Lee’s op-ed (I would have happily posted the entirety of Sen. Lee’s op-ed as well, but was reluctant to do that, given that it had already been published elsewhere):

Sen. Lee starts by saying that Article II, § 4 “stat[es] that only the ‘president, Vice President, and all civil Officers of the United States’ may be impeached.” (That’s not what § 4 states, to be precise, but it can be interpreted this way.) Lee contends that this means only “the” president may be impeached, not anyone who was ever president. But Donald Trump was president when the House impeached him on January 13. Lee does not—and cannot—argue that the House lacked the power to do this. And Article I, § 3, cl. 6 gives the Senate exclusive power to “try all impeachments,” without saying anything to restrict the timing of the trial. Lee does not address this either. More broadly, he does not engage the distinction between the timing of the offense and the timing of the trial.

He also ignores evidence other places that the Constitution regulates the possible consequences of officials’ actions. There too, the key is that the official was in office at the time of the offense, not at the time of the trial. For instance, the Speech and Debate Clause makes “senators and representatives” legally immune for their legislative acts—a protection that covers ex-senators and ex-representatives for acts they performed in office. Similarly, “members” can be punished by each house for disorderly behavior, and this power has been used to punish ex-members for things they did as members.

Lee next turns to Article I, § 3, cl. 7, which says that impeachment judgments “shall not extend further than to removal from office, and disqualification to hold [future office].” Lee says: “I read this clause—in particular, the use of the conjunctive ‘and’ rather than the disjunctive ‘or’—to establish removal as a condition precedent to the remedy of disqualification. If a public official is subject to removal through the impeachment process, then he or she is subject to disqualification. If not, then the opposite is true.”

Don’t be thrown off by the lawyerly lingo of conjunctive, disjunctive, and conditions precedent; just read the clause. It provides an outer limit for impeachment consequences: the Senate can’t go further than X-plus-Y. The point of the clause is that Senate cannot do Z, not that it must do X before it can do Y. (Separately, Article II, § 4 requires removal when applicable, though Lee does not mention that. In any case, that requirement is best read as keeping convicts out of office, not as protecting offenders from disqualification if they leave office first.)

The correct reading of Clause 7 becomes even more obvious when one looks at the whole clause. The clause’s second half, which Lee omits, provides that impeachment convicts are still subject to whatever consequences the criminal law might dole out. This was a departure from British impeachment, in which impeachment cases were not separated from the criminal process in this way. In Britain, impeachment could result in the full range of criminal punishments. The American version needed to make clear that only removal and disqualification could be leveled; fines, prison, or death would not be on the table.

Lee’s venture into constitutional history is short. He says that the Framers “chose a design that was different than the English impeachment system, under which any private citizen could be impeached.” But this is still a non sequitur, given that Trump was impeached when he was president, for his actions as president. And it ignores the practice of states. Around the time the Constitution was drafted and shortly afterwards, multiple states impeached and convicted ex-officials for things they had done in office. Some did so on the basis of state constitutional language that tracked the federal constitution. The Framers understood this possibility and did not explicitly exclude it.

While removal was important, the Framers also intended impeachment to serve other functions. Impeachment would also deter public misconduct and, failing that, provide a forum to investigate perpetrators and hold them accountable. It would be odd if the Framers designed the impeachment system so that deterrence and accountability were no longer an option in the final weeks of a president’s term. Indeed, it’s hard to imagine Senator Lee refusing to try a Democratic president impeached in his last week in office for, say, granting a mass pardon to all Antifa members. But these structural considerations are absent from his discussion.

Finally, Lee considers two precedents. He points to how the Senate dismissed the impeachment case against ex-Senator Blount in 1798—but skips over all evidence that the dismissal was because of the “senator” part and not the “ex” part.

Next is the impeachment and trial of ex-secretary of war William Belknap in 1876. Lee admits that the Senate voted in favor of jurisdiction, but stresses that Belknap was ultimately acquitted. Lee is right that Belknap’s acquittal does weaken the precedent somewhat, but he ignores that Belknap, unlike Trump, had left office before even being impeached—and thus that the case for jurisdiction in Trump’s case is stronger.

Lee also leaves out some interesting partisan dynamics. The Republican Belknap was impeached unanimously by the House despite having already left office. Republicans had a solid majority in the Senate and a party-line vote would have been strongly against jurisdiction. But rather than toss the case, the Republican Senate held a serious, month-long debate. In the end, 13 of the 39 Republicans senators voted that there was jurisdiction, and the trial proceeded for two more months.

It is unlikely that the Senate will have a similarly serious debate this time. It is also unlikely that a similar proportion of Republicans will vote against their partisan interest. But it is worth noting that if they did, that same proportion (when rounded) would yield 17 Republican votes today—exactly the number needed to attain a two-thirds majority to convict.

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This Is The Stunning Way Some Desperate Funds Covered Their Gamestop Shorts

This Is The Stunning Way Some Desperate Funds Covered Their Gamestop Shorts

On Friday we reported that while every hedge fund bro and TikTok-ing Millennial has been glued to the meltup in heavily-shorted stocks like GME (and the meltdown in the hedge funds who were heavily-short), there has been significant impacts under the covers of the rest of the financial markets that few have (for now) noticed. One place where the unintended consequences of the short squeeze hit hard was FANG stocks in particular, and the most popular and liquid names held by hedgies (i.e., the Goldman Hedge Fund VIP basket)  which have seen liquidations to meet margin calls, as well as due to VaR shocked-induced gross leverage drawdowns. In other words the highest the most shorted names rose, the more the selling in the “most popular” longs as shown below.

But it’s not just pair trades that have gotten hammered – and incidentally, according to several desks, GME was the most popular short pair-trade offset to the ubiquitous AMZN long, which is why we asked earlier if the WSB army isn’t coming after Jeff Bezos next…

… as we noted on Friday, the outsized influence from the booming video-game retailer has altered some ETF compositions and is forcing what Citi analysts called “ad-hoc rebalances and strategy adjustments.” In one of the most stunning developments, roughly $700 million in assets was pulled from the SPDR S&P Retail ETF (XRT) this week…

… with a record $506 million pulled on Wednesday alone, draining total assets to just $164 million.

The outflows come after GameStop’s surge swelled its weighting in XRT to an insane 20%, which is unprecedented given that the fund tracks an equal-weighted index, the video game retailer’s weighting should be closer to 1% according to Bloomberg’s James Seyffart.

While we didn’t know what specifically caused this record plunge in XRT assets, we speculated that “one possibility is that because XRT redemptions are delivered in-kind – meaning that its shares are exchanged for the underlying stocks in the fund – investors are ditching the ETF to get their hands on hard-to-borrow GameStop shares.“

As it turns out that’s precisely what happened. As Bloomberg’s Seyffart and Balchunas explain, “the $506 million outflow on Jan. 27 cut XRT’s assets to less than $240 million and offered further evidence of the stability of the ETF structure. Despite the plunge in assets, XRT’s price was unaffected, closing at a 6-bp discount…. The Jan. 27 outflow amounted to 5.55 million XRT shares, lowering the total to 2.6 million.”

Yes a huge move that barely impacted the price: that’s good – it means that the market is still liquid enough for historic asset reallocations in ETFs. But that’s not the punchline:

And the punchline: “The in-kind redemption was likely an attempt by investors to get their hands on scarce GameStop shares. Based on XRT’s weightings, those who took delivery of the underlying holdings received about 292,000 GameStop shares, alongside 94 other stocks.”

Unprecedented? Well, yes. Because as Bloomberg itself concludes “by allowing investors to redeem GameStop and other shares from its own holdings, XRT effectively acted as a dealer, akin to the role we see many liquid fixed-income ETFs playing in the bond market.“

Why is this important? Because as a look at GME borrow rates (courtesy of S3 Blacklight) shows, Jan 27 is precisely the day when the carry cost to hold GME shorts peaked (and at some dealers it soared as high as a suicidal 200% according to S3 Partners).

In the Thursday overnight session, the price of GME also peaked and has been drifting lower since.

Here is the bottom line: one (or more funds) perhaps facing a terminal margin call, was so desperate to close out their GME short in a market where the cost to borrow the stock had exploded as high as 200% (a death sentence for any hedge fund who plans to keep the GME short on for a long period of time), that they stripped XRT (which as Bloomberg notes “acted as a dealer”) of 292K shares of GSE to quickly plug the shortfall (no pun intended) and to emerge alive. As a result of this furious scramble, not only did the cost to borrow GME slide, but so did the stock price.

So what does that mean: is the panic squeeze over now that the cost to borrow GME has dropped? Well… maybe not and here’s why: with XRT effectively raided out of a paltry 300K shares, there are no more hiding places for GME stock to be raided. In other words, any shorts left are on their own. Meanwhile as S3 Partners’ Ihor Dusaniwsky wrote on Friday, some 113.3% of the GME float is still short (synthetically, including rehypothecated shorts). What’s worse, while the cost to borrow GME stock has dropped, it still remains around 30% which means that no hedge fund can remain short the stock indefinitely without suffering massive losses and yet still more than all of the float is short.

Whether this means the GME squeeze will resume tomorrow, or whether with the “help” of Robinhood’s effective shutdown and Citadel’s friends in high places, the short raid will finally end on Monday, we leave it up to readers to decide.

Tyler Durden
Sun, 01/31/2021 – 14:55

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“This Could Take The Dollar Down”, Alasdair Macleod Warns “There’s A Real Crisis In The Winds”

“This Could Take The Dollar Down”, Alasdair Macleod Warns “There’s A Real Crisis In The Winds”

Via Greg Hunter’s USAWatchdog.com,

Finance and economic expert Alasdair Macleod says watch interest rates and the U.S. dollar set the direction for the markets in 2021. 

Macleod explains, “You can see how, through interest rates, the future of the dollar is actually tied to the future of financial asset markets...”

”  If you get a pop in the bubble, and there is no doubt equity prices are wildly overvalued compared to the economic outlook…

Quite honestly, there is no alternative but for markets to correct very, very heavily.  When that happens, you are going to have portfolio outflows out of the dollar… The effect of that will be to take the dollar down along with financial asset prices…

We can get the collapse of the dollar happening very, very rapidly.”

Macleod says the money printing we are seeing now globally is on a scale and pace never seen in world history, and at the center of it all, is the U.S. and the new administration in Washington, D.C.  Macleod says,

“From last March until today, we can see a total of $8 trillion worth of QE (money printing) required to pay for all the programs, and that includes Biden’s $1.9 trillion, which I know has not been authorized—yet.  The figures are enormous.  There is absolutely no way that the dollar can hold its value with that level of money printing.  That’s just to deal with Covid.  Biden also wants to finance green spending . . . . How much more spending on top of that goodness only knows.  The thing is a mess, and it’s not just America.  When I look at Europe . . . they are incompetent . . . and when you get an incompetent government like that, forget it.  The Eurozone banks are on the verge of bankruptcy, I mean beyond insolvency.  They are on the verge of bankruptcy.  How do you handle a situation like that when you’ve got an incompetent bunch of bureaucrats at the top?  This is going to happen, and I am surprised it hasn’t happened yet.”

Macleod warns to forget about the phony inflation figures pushed by governments.  Real inflation will reset the price of everything.  Macleod says,

“The reality of the situation is the underlying rate of price inflation which means interest rates should be closer to10%.  America is now accelerating the money printing at a phenomenal rate,  which means everybody believing the inflation rate is 1.4% and governments can suppress interest rates forever . . . and governments can reset everything.  The answer is no.  There is a real crisis in the winds here. . . . The Biden Administration is likely to undermine the dollar more rapidly than if Trump got re-elected.”

Macleod says at some point, “You will get a stampede out of the dollar . . . . What the Fed has done is they have tied the future of financial assets with the currency.  When one goes, they both go.”

Macleod also says the best protection for the common man for the financial turmoil the world is facing is to “have some sound money like physical gold and silver.”

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Alasdair Macleod, Head of Research for GoldMoney.com.

To Donate to USAWatchdog.com Click Here. Alasdair Macleod posts articles regularly on GoldMoney.com under the “research” section of the site.  There is also much free information as well on the site. This segment is sponsored by Discount Gold and Silver Trading.

Tyler Durden
Sun, 01/31/2021 – 14:30

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Two Attorney Positions Open at FIRE

FIRE, the Foundation for Individual Rights in Education, a most worthy organization, is seeking a legal defense fund director and a legal defense fund fellow.

FIRE has employees from across the political spectrum who share its commitment to defending freedom of speech and due process on university campuses.

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Trump Impeachment Lawyers Quit Over Defense Strategy

Trump Impeachment Lawyers Quit Over Defense Strategy

Attorneys who had planned on representing President Trump in his upcoming impeachment trial have reportedly quit the case over Trump’s insistence that they present election fraud claims as part of their defense, rather than their recommended strategy of arguing the constitutionality of holding a trial for a former president.

In this Sept. 10, 2009, file photo, attorney Butch Bowers speaks during a news conference at the Statehouse in Columbia, S.C. Bowers is used to defending public officials in ethics cases. (Photo: Mary Ann Chastain, AP)

The team, led by South Carolina Lawyer Butch Bowers (recommended by Sen. Lindsay Graham (R-SC)) and which includes South Carolina lawyer Deborah Barbier, left in what was described by Politico as a “mutual decision.” A third attorney, Josh Howard, was reported by CNN as also leaving the team.

In this April 29, 2016, file photo, attorney Debbie Barbier speaks to reporters outside the federal courthouse in Charleston, S.C. (Photo: Bruce Smith, AP)

New attorneys are expected to be announced shortly.

The decision by Bowers, Barbier, and Howard to not join the team raised immediate questions, both about what compelled them to part ways and who actually will play the role of lawyer to Trump when the impeachment trial starts in early February.

Trump has had difficulty finding legal help for his second impeachment, with some of the lawyers who worked on his first trial saying they wouldn’t do the same this go around.

Bowers’ hiring was first announced by Trump ally and South Carolina Sen. Lindsey Graham. A longtime Republican attorney, Bowers represented former South Carolina Govs. Mark Sanford and Nikki Haley, and had experience in election law. –Politico

Trump’s first legal filing in the upcoming impeachment is due on Tuesday.

In a statement, Trump spokesperson Jason Miller largely ignored the legal rumblings – telling ABC News “We have done much work, but have not made a final decision on our legal team, which will be made shortly,” while slamming the impeachment itself as a sham.

“The Democrats’ efforts to impeach a president who has already left office is totally unconstitutional and so bad for our country,” said Miller, adding “In fact, 45 Senators have already voted that it is unconstitutional. We have done much work, but have not made a final decision on our legal team, which will be made shortly.”

Trump was impeached by House Democrats on Jan. 13 on a single article for “incitement of insurrection” after a small group of Trump supporters gained access to the US Capitol, where they wreaked havoc throughout Conressional offices and on chamber floors, before being allowed to casually walk out of the complex.

Tyler Durden
Sun, 01/31/2021 – 14:00

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Two Attorney Positions Open at FIRE

FIRE, the Foundation for Individual Rights in Education, a most worthy organization, is seeking a legal defense fund director and a legal defense fund fellow.

FIRE has employees from across the political spectrum who share its commitment to defending freedom of speech and due process on university campuses.

from Latest – Reason.com https://ift.tt/3oy1oJl
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How Does This All End?

How Does This All End?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Retail Investors Stage A Riot On WallStreet

For years, Wall Street has taken advantage of retail investors.

In 2000, they dumped companies with no earnings or revenue on unsuspecting individuals, eventually costing them their retirements. In 2008, it was outright mortgage fraud. From 2009 to the present, Wall Street has used algorithms, high-frequency trading, and user data purchases to front-run “the little guy” by scalping them for profits.

Interestingly, this past week, retail investors hit back. Just as individuals used social media platforms to organize protests and riots across the country, traders used websites like “Reddit” to organize a successful short-squeeze on Wall Street hedge funds. That short-squeeze, which forces hedge funds who were short stocks to cover the positions, has sent a handful of stocks to the moon. Notably, Gamestop, a retail store that is on its way to bankruptcy, has been the movement’s poster child.

If you happened to be visiting Mars over the last few days, here is what I am talking about.

That chart is what a “short-squeeze” looks like when those short a stock have to “buy to cover” at the prevailing market price. It hasn’t been pretty, and the “Wall Street Bets” Reddit group took credit earlier this week for forcing Melvin Capital, a hedge fund short Gamestop, to get a $2.7 billion bailout from its hedgefund friends.

From that moment, it didn’t take long for Wall Street to show its true colors by locking retail investors out of being able to buy Gamestop. Robinhood, Schwab, WeBull, and others all restricted trading in the stock, which resulted in immediate class action lawsuits.

The Margin Problem

While Robinhood, and other brokers, took a lot of heat for restricting trading in shares of the most heavily shorted names, there was a reason – collateral requirements.

Without getting into all of the minutiae of capital requirements and margin accounts, the simple fact is that the NSCC is required, by SEC rules tracing back to Dodd-Frank, to make sure there is always cash to settle.

Depending on the net of buys and sells, the brokerage (like Robinhood) is on the hook to pay or receive the trading’s net cash. That is simply credit risk. The NSCC takes on that credit risk. To mitigate the risk of a brokerage failure, they demand firms post a deposit of 10% of the collateral.

Here is where the problem comes in. When firms are already heavily on margin (currently at a record level of negative cash balances), sharp changes in the underlying collateral value can lead to immediate demands for more deposits from the brokers.

On Thursday, Robinhood had to raise nearly $1 billion in capital to secure the ability to cover collateral requirements. We also saw margin requirements being adjusted by the DTCC.

Of course, the risk to the markets is that with brokerage firms already running too lean, if a firm like Robinhood failed, the ripple effect through the financial industry would likely rival that seen during the Lehman bankruptcy in 2008.

Such are likely reasons the markets sold off this past week.

Strange Bedfellows

As I stated at the beginning, it is about time Wall Street got a little bit of what they have been dishing out on Americans for years. It won’t take long for Wall Street to “circle their wagons” and protect themselves, but maybe this is just the warning shot they needed to make some changes. However, I highly doubt it.

It is interesting, though, that Robinhood’s actions, which may just put them out of business, have also united an unexpected group of individuals. Who would have ever thought that Ted Cruz would agree on anything with A. O. Cortez?

Even Mark Cuban, who benefitted greatly from Wall Street making him a billionaire, weighed in.

The mania is likely to get far worse before it ends. Such is particularly true if Citadel Securities, the hedge fund that pays Robinhood for user data to front-run trades, reloaded their short positions before making Robinhood shutter access.

Nonetheless, the “Wall Street Bets” clan are undeterred at this moment and are doubling down on their “bets.”

At least for now.

How Does This All End

The real question is what eventually happens. In Gamestop’s case, the company is effectively a “dead man” walking retailer. So, the only reason anyone is buying the stock is simply due to the short-squeeze conditions that currently exist. As of this writing, the percentage of shares “short” is 122%. (That isn’t a typo.)

The problem comes when the “Wall Street Bets” traders eventually do want to sell. Those traders are “paper rich,” however, to convert their shares back into cash, they have to sell. The question will be WHO will they sell to?

Such is where market dynamics come into play. As stated in “No Cash On The Sidelines:”

“Every transaction in the market requires both a buyer and a seller, with the only differentiating factor being at what PRICE the transaction occurs.”

Think about a crowded theatre. At the moment, everyone is going into the theatre (buying), and no one is selling. However, when they begin to try and sell their positions, no one will be there to buy from them.

Such is the equivalent of yelling “fire.” The smart ones will get out early. The rest will find themselves scrambling towards a very narrow exit. Once the price starts falling, the sellers will swamp the buyers driving the price lower. In Gamestop’s case, given the company’s value is around $10, where it was trading before the mania, the decline will be both brutal and fast.

While Wall Street is the villain, this is one of those stories where the villain gets away with the crime in the end.

Markets Take A Hit

Last week, we discussed that our “money flow” signals were close to triggering, suggesting either a short-term correction of 3.-5% or an extended consolidation. (We publish a daily 3-minute video click here to subscribe)

Let me repeat that point from last week:

“Important Note: A correction can take on one of two forms. The market either declines in price to alleviate the overbought condition, or it can consolidate sideways.” 

Such remains the case currently, as on Wednesday, the market declined by almost 3% in one day. That swift sell-off did trigger our money flow “sell signal,” as the volatility index spiked higher.

While the market did bounce on Thursday, it was a “suckers rally.” That bounce led to a retest of the 50-dma on Friday. Money flows have continued to weaken, suggesting there remains underlying selling pressure in the market currently.

While I fully expect a reflexive rally next week, that will likely be an opportunity to reduce risk rather than chasing markets. Such will be the case until we see money flows start to turn positive again, suggesting some underlying buying pressure.

For now, we are maintaining our higher level of cash. After selling last Friday, we have the luxury to be patient and look for opportunities to add to our core equity holdings at cheaper prices.

Greed Breaks Things

My colleague Doug Kass penned an excellent piece on Thursday discussing market conditions:

“‘If there is one common theme to the vast range of the world’s financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.’ – Carmen Reinhart 

A grotesque level of speculation has taken us to where we are now. With a good perspective on history, we can have a better understanding of the past and present — and thus a clear vision of the future. 

Like previous speculative cycles, this is about greed and trying to make money. Attempts to make trading seem like ideological notions and high minded intentions are fanciful to me. Such makes my point that mishappened levels of speculation usually occur in the later stage of a Bull Market and, more often than not, presage a Bear Market. 

Speculation, as noted yesterday, is the outgrowth of undisciplined monetary policy.”

He is correct. The rampant speculation in the market is prolific, as shown in the charts below.

As Doug notes, speculation is the direct result of the “Moral Hazard” created by the Fed’s ongoing monetary interventions.

After a decade of injecting liquidity into the financial markets, it is no surprise that investors “believe” they have an “insurance” policy against loss. As noted in the linked article, such is the very definition of moral hazard. Every time the market “wiggles,” the Fed has expanded their monetary interventions.

However, at some point, the Fed may become trapped by the own policies. If the direct stimulus does cause an inflationary surge, the Fed may get forced to cut QE and increase rates.

The last time they tried that was in 2018.

It didn’t go well.

Tyler Durden
Sun, 01/31/2021 – 13:30

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