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Eric Cantor
Eric Cantor on left chats with President Obama in November 2010. Image courtesy White House

Reports surfaced this week that Republican House Majority Leader Eric Cantor may be invested in a fund that takes a leveraged short position benefiting from price declines in U.S. Treasury obligations. This type of fund would almost certainly appreciate in the event of a bond crash, the kind which some economists fear would unfold if the U.S. debt ceiling is not increased:

Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested ... The fund aggressively "shorts" long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable.
This is probably not quite as diabolical as it sounds, but there is an important lesson here. A generic, diversified, one-million dollar stock and bond portfolio managed by an experienced financial adviser might have $50,000 spread across several of these type of investments, often referred to as non-correlated assets. Reason being, even if stocks and bonds get clobbered, the non-correlated asset[s] can appreciate dramatically, thus shoring up losses in stocks and bonds during bad markets. If Cantor has an investment portfolio with similar qualities, $15,000 in a non-correlated asset class wouldn't represent a financial incentive to destroy the U.S. economy. It would be like burning down a million dollar mansion to collect 100 grand in fire insurance.

But this is a great opportunity to remind White House budget negotiators that people with significant investment portfolios, like most conservative senior members of the U.S. legislature and those who donate generously to them, have to have a debt deal to safely stay rich. The idea the GOP is negotiating from a position of terminal strength may make great Fox News clips and fire up the base. The notion they're so batshit crazy they'll annihilate themselves and their billionaire political sponsors might serve the tactical purpose of trying to spook Democrats into signing a crappy debt ceiling deal. But every GOP lawmaker knows perfectly well they're not going to risk their own life savings, and they know they'll be ordered to crawl over broken glass if that's what it takes to protect every last dollar in the very deep pockets of their conservative sugar daddies.

Originally posted to Daily Kos on Thu Jun 30, 2011 at 06:00 PM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.

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Comment Preferences

  •  Now (17+ / 0-)

    Issa's cozy lilttle protection for Goldman junkers he had a cool 600g's in, that looks ugly, at last at first glance.

    •  I was thinking along the same lines myself (7+ / 0-)

      Republicans are the big money party and more and more 'big money' people are telling them to raise the debt limit.

      The problem is with all the tea bag congresspersons elected in 2010.  They have very little knowledge of government or the economy and they are likely to vote what their constituents want even if their constituents are as dumb as a stone.

      I think the Dems can win this one ONLY if they stand firm.

      If so much weren't at stake I'd have a nice snicker about how the ultra-conservative Chamber of Commerce people realized they have created a monster that can bite them in the ass.

      Maybe the next time they'll learn to back candidates who know something about government. and macroeconomics.

      HylasBrook @62 - fiesty, fiery, and fierce

      by HylasBrook on Thu Jun 30, 2011 at 06:10:40 PM PDT

      [ Parent ]

  •  15g for Kantor is peanuts (2+ / 0-)
    Recommended by:
    agent, cassandracarolina

    He makes his money other ways...

  •  Even though Cantor is awful (3+ / 0-)
    Recommended by:
    Egalitare, chimpy, Odysseus

    I seriously doubt he's net aggressively short on treasuries.

    He'd have to be super confident that he can blow this up and not get any deal.

    I'm considering doing something like that because I'm legitimately worried that the GOP is actually crazy/stupid/ideological enough to blow up the world financial system rather than allow Obama to win anything.

    When we stop putting leaders from the past up on pedestals and ignoring their flaws, we can start seeing our present leaders for what they really are.

    by PhillyJeff on Thu Jun 30, 2011 at 06:08:30 PM PDT

  •  I'm not sure whether to use my non-correlated (6+ / 0-)

    asset's to by a pizza or a chinese dinner. I'd flip a coin but that's going toward the pizza.

    Slow thinkers - keep right

    by Dave the Wave on Thu Jun 30, 2011 at 06:08:40 PM PDT

  •  Okay, I know this is wrong, But what is the deal (0+ / 0-)

    with the lack of Open Threads.

  •  On the flip side.... (3+ / 0-)
    Recommended by:
    chimpy, emal, Odysseus

    this particular fund would also do well in a rising stock market because people would leave their long treasury bond positions in order to put the money into the stock market. The fund (likely TBT) does well in 2 environments.....high inflation when treasury yields are rising and bull stock markets when more money is put into stocks rather than bonds which also leads to high yields). Would you hate Cantor's investment as much if he was making money because of a rising stock market? Because frankly, if rising markets gave a kick start to the economy and jobs were created, Cantor would still be making money on the TBT. I would prefer that elected officials were not involved in stock markets at all so there is no chance of conflict of interest under any circumstance.

  •  most sensible article i've seen all week (7+ / 0-)

    in the midst of all the debt ceiling hype and bloviation, it comes down to self-interest.  Thank you Darksyde.

    "Kossacks are held to a higher standard. Like Hebrew National hot dogs." - blueaardvark

    by louisev on Thu Jun 30, 2011 at 06:11:48 PM PDT

    •  I still worry ... (3+ / 0-)
      Recommended by:
      DarkSyde, agent, Odysseus

      Are enough of them in on a schedule? Could that schedule include some nominally uncovered period of hours or days, during which no notes are scheduled to mature? If enough see a "technically" safe way to push this past the brink, would they take it? There would technically be no default, but markets could be unsettled enough to affect options prices.

      Would they share the dates and times with the rest of the leadership, or even other influential Republicans? If a few of them saw some opportunities for personal advantage, would they take it?

      Why is there a Confederate Flag flying in Afghanistan?

      by chimpy on Thu Jun 30, 2011 at 06:35:40 PM PDT

      [ Parent ]

      •  That's (1+ / 0-)
        Recommended by:

        a very good series of questions. Related to the sechedules, I've been trying to find out if there is a way, hypothetically, to choose which bonds get paid off and which don't, or which get partial payment and which don't, etc. There might be, it might not be legal, but it could well be possible.

        I believe there are also special exceptions allowing the US gov't to delay paying off the face value on maturity. The US may have to keep paying interest, or interest keeps accruing that has to be paid, but I believe the maturity payoff can be postponed.

        What probably can't be done is choosing which holders get paid. It's easy enough to put tnotes in street name, and if that were done in an overseas brokerage firm, I don't think the US could easily find out who owns what. So I don't think we could easily cut out the Chinese government for example and still pay US holders.

        •  Or declare that we've exceeded our limit, ... (1+ / 0-)
          Recommended by:

          ... but fix it after just a few hours of cable-TV madness, before the calendar day ends in some western time zone.

          Or stage some hangup, but keep technically to the letter of the note, by somehow finding money for anyone who actually carries physical paper into an actual Treasury office.

          Stupid tricks, but the whole tea party thing is about theater. It appeals because so many saw government failing to provide the drama they've come to expect from reality television.

          Why is there a Confederate Flag flying in Afghanistan?

          by chimpy on Thu Jun 30, 2011 at 07:05:23 PM PDT

          [ Parent ]

  •  There is always the 14th amendment (6+ / 0-)
    Recommended by:
    DarkSyde, phonegery, chimpy, agent, wsexson, Matt Z

    That is something that Obama can invoke to bypass the debt ceiling altogether.

    President Obama, May 5, 2011: "When we say we will never forget, we mean what we say".

    by Drdemocrat on Thu Jun 30, 2011 at 06:15:33 PM PDT

  •  Huh. Now isn't that an interesting (4+ / 0-)
    Recommended by:
    Amber6541, Egalitare, chimpy, Matt Z

    slant on all this.

    "I'm sculpting now. Landscapes mostly." ~ Yogi Bear

    by eXtina on Thu Jun 30, 2011 at 06:16:00 PM PDT

  •  Selling US short is nothing unusual. Mr. Soros (0+ / 0-)

    please illuminate US on the upside for calling in the
    "shorts".  Oh, don't be modest.  Hedge Funds are making hay on the shortfalls of regulation.  "Free Markets" is the game of the day?

  •  Isn't that insider trading on crashing (1+ / 0-)
    Recommended by:

    the US economy?  He crashes the economy, but since he knew he'd do that, he makes money?  It's criminal and he should be prosecuted.  

    I object to violence because when it appears to do good, the good is only temporary; the evil it does is permanent.

    by Futuristic Dreamer on Thu Jun 30, 2011 at 06:22:05 PM PDT

  •  The more I learn about Cantor the less I trust him (2+ / 0-)
    Recommended by:
    chimpy, Matt Z

    but this takes the cake.

    Plutocracy too long tolerated leaves democracy on the auction block, subject to the highest bidder ~ Bill Moyers

    by Lefty Coaster on Thu Jun 30, 2011 at 06:22:46 PM PDT

  •  So (1+ / 0-)
    Recommended by:
    Futuristic Dreamer

    as long as you don't show your unit while screwing us everything's fine.

    Cantor, Issa, Thomas, and Scalia should be under investagation for what they've done, but it won't happen, ever.

    The same people who nearly destroyed us before now want to finish the job. Will you let them?

    by draa on Thu Jun 30, 2011 at 06:32:08 PM PDT

  •  Treasuries will fall either way (1+ / 0-)
    Recommended by:

    Treasuries will fall in any case. A bet on T bond prices doesn't necessarily means he expects to freeze the debt ceiling, it's just a reasonable look at what's ahead.

    Treasury bond price movement is inversely related to Treasury interest rate.
    Interest rate go down, price in secondary market goes up,
    Interest rate goes up, price goes down.

    Right now T-Bonds are paying less than 1 % for short term and up to 3% for 10 yr bonds.

    At less than 1% there is no where further down for rates to go. So eventually, they will go up.
    Rates go up, which means prices go down and anyone holding the inverse ETFs that Cantor is holding will make money.

    The question is how long will that take to happen.

    For reason that I'm not going to get into. Leveraged ETFs are wasting assets. Over the long run, they lose value, so you have to expect that the thing you want to happen is going to happen within the next 6 months or at most a year.

    •  The fund he holds.... (0+ / 0-) not a buy-and-hold (because of it's wasting properties). Great short term trade though. Seriously, this whole conversation sucks....he's betting on failure. I trade for income and have long since adopted a totally immoral "if you can't beat them, join them" stance. I never bought Haliburton though...they are just too evil....

  •  Patriotic? (1+ / 0-)
    Recommended by:

    These Republicans would rather get rich than prevent the United States from defaulting on its debt. And these assholes have the balls to call a Democrat unpatriotic.

  •  Seems like Pete Rose got denied the Hall of Fame (2+ / 0-)
    Recommended by:
    DarkSyde, marty marty

    for betting against his team.

    It's unconscionable that a lawmaker would have ANY securities that profited from a tank in US Bonds.  That's betting against your team.  

    If he wants to diversify his portfolio in that direction, private citizenship beckons.

    "Dega dega dega dega. Break up the concrete..." The Pretenders

    by Terra Mystica on Thu Jun 30, 2011 at 06:47:58 PM PDT

    •  It's (2+ / 0-)
      Recommended by:
      Odysseus, Terra Mystica

      SOP to have relatively small amounts in these kind of asset classes. Managed futures for example. This one is an ETF, which means btw his broker probably gets to charge higher wrap fees that if it were an open ended mutual fund.

      But even if it's SOP, it's a little unseemly. And if a dem, especially a President who's been accused of "Hating America" was exposed in the same position, the right could easily make a scandal out of that.

  •  well, let's be fair and balanced here (2+ / 0-)
    Recommended by:
    agent, wsexson
    people with significant investment portfolios, like most conservative senior members of the U.S. legislature and those who donate generously to them, have to have a debt deal to safely stay rich.

    Can we pretty safely say "like most senior members of the U.S. legislature" and have this assertion be equally true? See "The 50 Richest Members of Congress"

  •  The people who bought Eric Cantor and his cronies (2+ / 0-)
    Recommended by:
    DarkSyde, Futuristic Dreamer

    might have a much bigger short bet on America.

    We have only just begun and none too soon.

    by global citizen on Thu Jun 30, 2011 at 07:03:45 PM PDT

    •  Unlikely, (4+ / 0-)

      odds are near certain those are precisely the people who will give the GOP their marching orders to pass a deal. They'll let them bluff and pose, but if time gets short and no solution is near -- and assuming this 14th amendment doesn't pan out -- the GOP will fold. And the thing is they know it, and everyone who understands the issue well knows it.

      Note for example that so far, the bond and stock markets are behaving exactly like there will be a deal. And iIf those markets crash hard just once in the weeks ahead, then GOP phones start ringing with the Kochwhores telling them to make it happen.

      The thing is, the GOP has really managed to leave themselves wide open, if the dems play hardball. Republicans are laying down the line on corp jets and oil companies. A couple of prime time address by Obama with a couple of charts and graphics showing soc sec checks not going out, and it's all over.

      So folks like me dearly hope the GOP does hold out longer, because I believe they've fatally misjudged the WH response and the people's reaction to it.  

      •  The comments by Simpson and Frum (0+ / 0-)

        give me hope that you are right. The relative invisibility of those comments (and I watch business news heavily) makes me less sure. Regardless, I hope Obama hangs really tough and pushes for more than $400 billion in revenue from ending tax expenditures.

        I am having a hard time reading whether the usual corporate barons are calling the shots or the crazies like the Koch brothers who might well be looking to find ways to come out ahead politically and economically as the economy folds.

        We have only just begun and none too soon.

        by global citizen on Thu Jun 30, 2011 at 07:41:27 PM PDT

        [ Parent ]

  •  What a complete dickhead (0+ / 0-)

    A senior member of our congress is such a patriot that he bets against his own government so that he can make money from his traitorous actions to help himself in from the misery of the citizens of the United States of America.
    I invite you to come an visit me to discuss your actions. I am at about 80ft altitude, so be careful you don't end up with a nose bleed.

    Just as prostitution is the world's oldest profession, religion is the world's oldest scam.

    by Agent420 on Fri Jul 01, 2011 at 09:48:22 AM PDT

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