Sunday, 22 July 2018

September will bring debt ceiling debates and blockchain bonds

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  • Anthony Peters columnist format

Is this just the “silly season” or is there possibly some truth in the headline “Betting odds on Trump’s resignation are improving day by day”. Not wishing to sound churlish but I really did have to read the article in order to find out whether the odds were “improving” on him leaving or staying, although I was not entirely surprised to read that the price on his throwing in the towel is apparently shortening.

Trump might be many things but a quitter he is not and he is not one to take “No” for an answer. If he were, he would today not be occupying the role as President of the United States of America. How and whether he can swing round what looks like a failed presidency just eight months into its term is another matter entirely. He came to the job utterly unprepared and remarkably naive with respect to the limitations of the power of the Presidency. He might be many things - many of them deeply unpleasant and offensive - but a total buffoon he is not, as the overdue removal of Steve Bannon and the timely appointment of John Kelly might yet prove.

It was Mark Twain’s line that reports of his death - following the publication of a premature obituary - were greatly exaggerated. There is no doubt that the stupid and loose talk in the aftermath of Charlottesville has finally isolated Trump from some of the more sensible forces within the Republican movement while at the same time giving the liberal and left-leaning elements a unifying rallying cry. Trump is most definitely running out of political lives and the possibility of him being able to implement his populist agenda looks ready to go up in smoke. The question is whether his well-honed survival instincts or his loud and brash dogmatic orthodoxy will prevail. The surprising overnight announcements on the revised military strategy for Afghanistan would possibly point to the former.

All the while, Steve Mnuchin, already trapped in his very own “Penelopegate”, is trying to prepare the ground for next month’s political catfight over the raising of the debt ceiling. I have seen more debt ceiling debates than one can shake a stick at. They offer all manner of opportunities to members of Congress to showboat while at the same time handing them the keys to the cabinet where the pork barrel is kept.

When I entered the industry in the late 1970s, the debt ceiling was still below US$1trn. That threshold was crossed for the first time in 1981 since when it has gone up and up and up and it now stands at US$19.808trn. And that is still not enough. In fact it was reached in May and the federal administration is running on temporary measures. That the ceiling will be increased is not in doubt; no politician wants to be responsible for the country to have defaulted on its debt, but the issue is how much it will cost a cash-strapped Treasury in concessions in order to secure the votes required. Mnuchin is hoping to get the increase through as cleanly as possible and without too many strings attached.

With this matter of sincere priority, Mnuchin needs the “scandal” surrounding his wife, Louise Linton, like he needs a hole in the head. She posted a photo on Instagram of herself disembarking from a US government jet commenting “Great day trip to Kentucky!”. She then added hashtags for various pieces of her expensive wardrobe, listing Roland Mouret, Hermes, Tom Ford and Valentino. That went down like a lead balloon with much of the public who just saw the arrogance of power as it was not mentioned that the new wife of the Treasury Secretary was accompanying her husband on an official trip to Kentucky. How stupid can people be? It is of course not a career defining hiccup for Mnuchin, but it will do little to enhance his authority at a time when he has to look at his best.

Meanwhile markets had a bit of a mixed and directionless day. The debate as to whether we have seen the top of asset prices now and whether we are building up to a monster correction goes on, with neither side of the argument being able to formulate arguments strong enough to win the debate. Arguments that hedging activity is beginning to pick up in the VIX is not borne out by the volumes where yesterday saw the lowest single day turnover since early July. The US 10-year note future also saw a drop in volume with only 180,676 lots being traded, well below the 15-day moving average of 239,547 lots.

On this basis, does it even make sense trying draw any conclusions with respect to underlying market sentiment from day to day trading activity. To be frank, probably not. The bosses are away on the beach with the kiddies and the junior lunatics have been left to run the asylum. Trust me, I’ve been there. That said, events can occur in August which shake the world but worry not, the big guys can normally be back on the field of battle within 12 hours. But shy of Kim Jong-Un actually trying to land a missile off Guam, which both I and Korean markets doubt he will do, not too much can go wrong.

Finally, BlockEx, the London-based digital asset platform, is hoping to bring the first blockchain-based bond issue sometime in September. The technical and regulatory bridges that have had to be crossed in order to gain approval to go public have been manifold but BlockEx is aiming to be the first firm to really bring distributive ledger technology into the daylight of global markets. The firm, which last week went live with a KYC-compliant exchange for trading bitcoin, etherium and other crypto currencies, has built an institutional issuance platform that aims to reduce costs and cut the time it takes for securities to be brought to market. Tomorrow’s world today? Watch this space.

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