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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Tesla has now lost about half its value since its December peak and still trades at over 100 times earnings. But wherever there’s a falling knife, there’s a day trader poised to catch it.

JPMorgan has been crunching numbers on retail trading flows ever since the whole 2021 GameStop saga. The latest instalment of its “Retail Radar” weekly report reveals a whole lot of dip buying. Alphaville’s emphasis below.

Retail traders net bought $12.5B over this past week, +3.2z above 12M average. They broke the $2B threshold for the past four days in a row. It’s worth noting that this level that is more easily reached in a “down” year than in an “up” year: it was rarely seen in 2023/24 (4 times in total), when S&P produced double-digit returns, but occurred 10 times in 2022, concentrated in Feb during the Russia-Ukraine war, and has already happened 16 times this year.

The more granular details are interesting. Of the $12.5bn, about $4.2bn went into ETFs (btw, the industry hit $15.5tn of assets at the end of February). Broad equity market ETFs were the most popular, along with a smattering of bond and gold ETFs.

However, a whopping $8.3bn went into individual stocks over the week, and of that Tesla attracted the lion’s share. Here’s JPMorgan again, with the bank’s emphasis in bold.

Single stocks accounted for +$8.3B of the inflow. TSLA (+$3.2B, +3.5z) and NVDA (+$1.9B, +1.1z) collectively contributed more than half, and the rest of Mag7 contributed another $1B. Notably, they have been buying TSLA for 12 consecutive days, adding $7.3B in total. While this is not the longest consecutive streak of Retail buying in TSLA, it is the highest magnitude among all past “buying streaks” in over a decade.

Here it is, charted (apologies for bad quality image, zoomable version here):

So how is that dip-buying going for retail traders? Well ..

Further reading:
— $1.4bn is a lot to fall through the cracks, even for Tesla (FTAV)

The UK is just a few days from a new fiscal event, and Rachel Reeves is hemmed in by her past decisions.

Having pledged to get Britain down to one budget per year, the Chancellor maintained the Office for Budget Responsibility’s requirement to produce fiscal forecasts twice a year, meaning she has to now respond to updated forecasts without the luxury of tax tweaks.

So this time around, sating the fiscal rules gods means relieving a lot of people of their benefits. Everyone is entitled to their own views on whether that is good or bad thing, but hopefully we can agree on this: it’s not a great thing to be in effect forced to do so by made-up rules.

But this is all big-picture political stuff, which is why here at FT Alphaville we’ve decided to deliberately miss the wood and stare intensely at the branches of one particular tree.

When we last wrote about the OBR’s assumptions for the Bank of England’s quantitative tightening, we were pretty bamboozled. To remember why, let’s go back to basics.

Back to basics

As part of their twice-yearly forecast suite, the budget watchdog’s analysts estimate future losses from the BoE’s Asset Purchase Facility. At present, the BoE is whittling the APF pile down in two ways: through the passive roll-off of maturing bonds (“passive QT”), and the active selling of others (“active QT”).

The OBR’s predictions matter a lot, because the UK’s fixation on maintaining “fiscal headroom” — which is currently extremely tight — means every billion counts when Budget day comes.

In the first two years of QT (2022—23 and 2023—24), the Monetary Policy Committee aimed for a total reduction of £100bn per year, consisting of the passive roll-off plus whatever active sales level was needed to hit that 💯.

This worked out as £42bn of active sales in the first year, and £54bn for the second. At its March forecast last year, the OBR decided the best way to extrapolate these numbers forward was to look at the active sales levels and average them. And so it did, duly forecasting that future active sales would be £48bn ((42+54)/2) per year throughout the five-year forecast window.

Notably, this resulted in a striking figure for the current year (2024—25), during which about £87bn of passive is expected. 85+48=£135bn, which was a lot of QT to predict, especially following two fixed £100bn years.

Within a few short months, the OBR’s prediction had been proven to be completely wrong: at its August meeting, the MPC backed another £100bn envelope, implicitly consisting of £87bn of passive and £13bn of active.

As we noted last autumn, this presented a learning opportunity for the OBR. Heading into October’s budget, analysts speculated on four possible ways the OBR might predict future active sales:

— An average of the first three years of planned active sales ((42+54+13)/3=£36.3bn per year through the forecasting window).
— Extrapolating the latest-year active sales figure to project £13bn per year through the forecasting window.
— Extrapolating the BoE’s previous decision to predict a £100bn envelope, in which active sales top up passive to hit that level.
— Following the path expected by markets, as they do with things like Bank Rate.

The difference between these was highly material in the fiscal context. There was a projected spread of £15.5bn between the most gentle of these (£13bn active forward) and the harshest (£100bn envelope) in terms of how they would affect Reeves’ headroom.

Absurdly, the OBR didn’t do any of these, choosing instead to ignore the third-year envelope and simply maintain their £48bn-per-year prediction, based on the first two years of active sales. As we wrote then:

The effects this will have had on Reeves’ headroom aren’t as extreme as if the OBR had presumed a continuous envelope of £100bn p/a — in effect, nothing has changed except the current year — but it’s definitely at the tougher end of things compared with some of the possible alternatives.

Back to the near future

Of the five apparent ways the OBR could have made up this number, they chose the second-most-harsh in terms of how it cuts into Reeves’ fiscal headroom.

Now, first, let’s get four things straight:

1) The OBR is not to blame for the sorry situation in which their QT predictions could contribute, in some way, to things like welfare cuts.
2) The OBR should not be pressured into choosing the model that is most favourable to the Chancellor of the day.
3) Other factors (like the expected path of Bank Rate) may well matter as much as the overall scale of active sales.
4) A lot of this may prove to be academic if the BoE finds it has hit a minimum viable level of reserves and stops QT early for stability reasons. Based on its current trajectory, it will reach the upper band of its Preferred Minimum Range of Reserves by the end of the year.

Writing for FTAV ahead of that fiscal event, T Rowe Price’s Tomasz Wieladek advocated for the OBR tracking the market-predicted path, as indicated by the BoE’s Markets Participants Survey (MaPS).

It’s a decent moment to revisit MaPS. According to the latest survey, released last month, the median prediction is for there to be almost zero active QT by 2028—29:

Even the 75-percentile estimate is less than half the OBR’s current assumption. Meanwhile the 25th percentile assumption is that active QT is over by the ends of the next fiscal year. Which to trust, the aggregate view of about 70 firms who have a vested interest in getting this right, or an arbitrary average?

Let us say without ambiguity: how the OBR predicted active sales in October was an indefensible fiscal Numberwang, and it ought to change. The current framework doesn’t help anyone, and the OBR loses credibility by using it.

We asked the OBR if it will be revisiting its QT assumptions as part of the upcoming economics and fiscal outlook. A spokesperson told us:

I’m afraid we can’t provide any guidance on what we might consider for the forthcoming forecast but will of course explain any necessary changes fully in the EFO on 26 March.

Roll on Wednesday!

Update: Over on BlueSky, Resolution Foundation chief executive Ruth Curtice has made an important observation regarding our analysis above. She points out that the current deficit rule that was introduced in October, a faster rundown pace is now the better option in terms of headroom (inverting the former dynamic), because it reduces interest payments down the line:

This doesn’t in our view change the overarching point that the number creation system is extremely flawed, but does mean the direction and scale of impacts are now different to those we described before the October budget.

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Cometh the Friday, cometh the charts.

Your task is to identify the three charts below. And, if you believe you have succeeded, to send your answers to [email protected] with the subject ‘Charts’ — letting us know if you wish to remain anonymous — before noon on Monday.

Our task is to go through all those who have got the answers correct, to use a colourful spinning wheel to determine a winner if several of you have done so, and to send a T-shirt to the winner.

Without further ado . . . 

Good luck.

Being a blog means FT Alphaville can always react quickly to news developments. Unrelatedly, let’s write about last month’s Bank of England Monetary Policy Committee meeting.

As ING’s James Smith wrote in a note published this week (ahead of the next MPC decision, which will be announced on Thursday):

Drama is not often synonymous with the Bank of England. But February’s meeting was nothing short of a bombshell. Catherine Mann, who for months had led the opposition to rate cuts, surprised everyone with her vote for a 50bp rate cut. And that posed the question: if the arch-hawk is prepared to vote for faster rate cuts, will the rest of the committee soon follow suit?

From an MPC-watching, inside-baseball perspective, Catherine Mann was already the second-most-interesting member of the current lineup*, and this dovish pivot adds a new feather to her plumage.

Which is a good excuse to do some more trivial analysis. As we’ve previously observed (see parts one, two and three), there are lots of ways of looking at the MPC’s voting patterns. One of our favourites is the hawk/dove spectrum, on which we ranked members past and present by net their voting pattern (hawk votes minus dove votes).

Here’s how that looks with the latest data (see you tomorrow, mobile users):

Net figures miss nuances. Two members with the same notional dove/hawk score might actually have had radically different voting patterns.

A score of zero, for example, could indicate a flawless record of voting with the majority, but could also capture a serial rebel who happened to fly with the hawks and doves in equal measure.

To look at this effect, we can sort all MPC members into one of four categories based on their patterns of rebellion: those who always won their votes, those who only ever rebelled hawkishly (“pure hawks”), those who only ever rebelled dovishly (“pure doves”), and those who rebelled in both directions.

This requires us to come up with two new bits of nomenclature. For the serial winners, we’ve settled on “turkey vultures”, with Bryce reasoning that as carnivores that don’t hunt, they land neatly between hawks and doves. For the both-way rebels, we picked “hybirds”, the category which Mann recently joined (having previously been a pure hawk).

Armed with this taxonomy, here’s a mildly interesting chart:

We were surprised that hybirds are so high up (note that if we treat ex-dep gov Ben Broadbent as two separate entities in his internal and external phases, there would be one more turkey vulture) — and that the distribution is so even.

Let’s try breaking down those bars above to show the actual members involved, ordered left to right from more dovish to most hawkish (for hopefully obvious reasons, not an interesting measure for the turkey vultures):

There’s… something here. Observations:

— Having recent joined the hybirds after a long spell as a pure hawk, Catherine Mann is easily the most hawk-skewed hybird.
— Conversely, Stephen Nickell is the most dove-skewed hybird.
— Sir Charlie Bean (former deputy governor for monetary policy) is the only deputy governor to have rebelled solely in a dovish way.
— Pure hawks have a much more even mix in terms of internal/external.
— Bean’s predecessor, Rachel Lomax, is the only MPC member to have rebelled evenly in both directions (having gone three times each way).

By this measure, Mann is exceptional — for now, at least. But this possibly undersells her pivot. After all, years might have passed between any given hybird’s hawk and dove turns, while Mann pivoted from hawk to dove in the space of two meetings:

Has such a rapid shift ever happened before?

Yes. The quickest one-member pivot in MPC history was external member William Buiter, who flipped between meetings in the late ’90s. Pointlessly, we can track the gaps between each hybird voting one way (hawk/dove) and then the other…

…and see Mann’s pivot is the second-fastest on record.

Obviously this is ✨ reductive ✨ in that it only reflects hawkishness or dovishness as expressed by actual vote rebellions, and ignores that a swap from a rebel stance to voting with the majority is equally significant to the other way around.

And, by our chosen definition, in all instances but Buiter’s 1998 turn, the pivot encompasses a period of neutrality, during which anything might have happened (Sir Dave Ramsden’s first “pivot” took nearly three years, and covered most of the Brexit process and the height of Covid-19). Basically: the bigger the gap, the more trivial the pivot.

So what’s the story behind Buiter’s one-meeting swap — to raise rates at the August 1998 meeting, and then to lower them in the September 1998 meeting? The BoE’s spreadsheet of MPC votes records these only as “increase” and “decrease” rather than a specific preferred rate, but the minutes of the time offer more detail.

At the August 1998 meeting, members were fretting about Asian economies; US growth and stock prices; discrepancies between Office for National Statistics data and private surveys; and wage growth feeding through into inflation.

The MPC eventually ended up in a three-way split, with seven votes to hold Bank Rate at 7.5pc, one to cut (DeAnne Julius) and Buiter’s vote to raise.

Buiter’s rationale is spelled out in the minutes (our emphasis):

The arguments for raising rates were as follows. The central projection for inflation was above the target throughout the forecast period, except at the 2 year horizon. The risks to inflation were, moreover, on the upside throughout – and especially towards the end of – the forecast period, so that the mean projection of inflation was above 2 ½% throughout the forecast period. On one view, it seemed likely, notwithstanding the considerable uncertainties, that inflation would be increasing beyond the two-year horizon, as the effects of sterling’s appreciation on net trade wore off and as the impact of government spending on domestic demand came through. Thus, just as inflation outturns had persistently been above target in the past, it was more likely than not that inflation would be above target in the foreseeable future. This would be damaging to credibility, and called for an immediate 25 basis point rise.

By September, everything and nothing had changed. In the intervening period, Russia had slumped into a financial and political crisis, the Japanese growth outlook had worsened, and commodity prices had come under pressure. Meanwhile, BoE staff were, uh, still struggling to reconcile ONS figures with private surveys.

Once again there were seven votes to hold, but this time Buiter swung, joining Julius in the dovish camp. Their rationales appear to be separate (our emphasis):

37. On a second view, although the outturns for official data on domestic activity were broadly as expected, business surveys were very weak for the second consecutive month, the equity market had come off the top and the correction might still have a long way to go. The change in the world outlook was also significant news. Taking these factors together there was sufficient evidence already to shift the central projection for UK inflation from above the target to below. On this basis, rates should now be cut by 25 basis points.

38. On a third view, there had already been a danger of undershooting the inflation target and the previous case for a cut in rates was reinforced. The full extent and timing of the reduction would be a matter of tactics but it should start immediately. Even after interest rates started to fall, sterling would be subject to upwards as well as downwards pressure, given the relative strength of the UK economy and investors seeking a safe haven from world events.

Assuming they are separate, the second argument (point 38.) about the risks of an inflationary undershoot appear to be Julius’s, given they echo those from a month before. Which would suggest those following point 37 are Buiter’s. The facts changed, and he (majorly) changed his mind.

ING’s Smith continues:

The disagreement boils down to two things. First, Mann believes in a much more activist approach to setting policy than her peers. She was more aggressive on rate hikes, and now takes the same view on cuts. We sympathise with that view; the fixed-rate nature of UK lending (especially mortgages) means that policy changes take longer to feed through than they once did. If you believe the outlook for growth and inflation is shifting, then gradual rate cuts are initially much less effective than they once were.

And that’s the second point: Mann does believe the outlook has materially shifted. In recent comments, she has talked about the risk of “non-linear” falls in employment, in response to hefty tax hikes coming through for employers next month.

Mann may be right or wrong — and may have been right or wrong in the past — but a willingness to pivot is basically good, we reckon. Glory to the hybirds.

*First place is obviously Sir Dave, Keeper of the QT Envelope.

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As Tesla’s car sales and share price plummet in response to Elon Musk’s political and physical stances, we would like to draw readers’ attention to something puzzling in the group’s accounts.

Compare Tesla’s capital expenditure in the last six months of 2024 to its valuation of the assets that money was spent on, and $1.4bn appears to have gone astray.

The sum is big enough to matter even at Tesla, and comes at a moment when attention is returning to the group’s underlying numbers, now that its fully diluted stock market valuation has crashed from $1.7tn to below $800bn.

A closer look at Tesla’s cash flow statement may also prompt investors to ask other questions, such as why a business with a $37bn cash pile raised $6bn of new debt last year?

First, consider the apparent anomaly. Tesla is investing heavily, particularly in AI infrastructure. It intends to spend at least $11bn in each of the next few years, aiming to take advantage of opportunities in robots, computing and batteries.

Looking at last year, in the third and fourth quarter combined, Tesla spent $6.3bn on “purchases of property and equipment excluding finance leases, net of sales” according to its cashflow statements.

Over on the balance sheet, however, the gross value of property, plant and equipment rose by only $4.9bn in that period, to $51bn. Note seven to the financial statements has the breakdown:

(Edited to fit on page, zoomable fuller version here.)

We’d expect the numbers to tally. General Motors, for instance, spent $30bn on capex over the past three years, disposed of $14bn of assets, and so reported a $16bn rise in the gross value of property, plant & equipment to $88.7bn at the end of last year.

Luzi Hail, professor of accounting at the Wharton School, told us:

The reasons for why the reported numbers will not fully add up in most cases is that we only see the net changes in these accounts (i.e., PP&E and the associated Accumulated Depreciation accounts) but do not have all the detailed transactions that were going on. Maybe they sold off some PP&E and we do not know what the net book value (the respective gross amounts) were. Other things that will make an exact reconciliation impossible are M&A transactions and foreign currency transactions. So, in most cases, the capex number will give you a good approximation for the increase in gross PP&E but there could be other reasons going on for why in a particular case this might not be the case. 

Tesla reports the gross figures and the accumulated depreciation, so we can see how the net figure is arrived at. It didn’t disclose any sales or “material” asset impairments that would account for the missing $1.4bn, and we’re sure auditors PWC would be alive to the important signal such declarations of mal-investment would send.

Foreign exchange seems unlikely to explain the gap either. Tesla makes cars in the US, China, and Germany, and while the euro did weaken against the dollar in the periods, four-fifths of Tesla’s “long-lived assets” are in America. See note 17, for those reading along:

(Edited to fit on page, fuller zoomable version here.)

Tesla’s gap is also unusual by its own standards. Here’s a chart of capital expenditure on PP&E vs the change in gross value of those assets for every quarter since the start of 2019:

A positive number indicates that the balance sheet value of assets rose by more than capex. Aside from 2021, when there was a $1.3bn rise in the value of the assets, the variance has tended to even out and has not approached the scale of the last quarter.

Such anomalies can be red flags, potentially indicative of weak internal controls. Aggressive classification of operating expenses as investment can be used to artificially boost reported profits.

Tesla did not respond to requests for comment.

Perhaps the assets will show up next quarter. It’s also possible the recent presidential endorsement will boost sales, and that some would-be buyers are waiting for an updated Model Y to hit showrooms.

If not, the question of what Tesla is doing with its cash, and where the money is held, may become more pertinent.

Last year the group generated $15bn of operating cashflow. It invested $11bn into its businesses, and didn’t pay a dividend or buy back shares with its large cash pile (putting Tesla in a very select club of large companies that do not, along with mysterious Temu owner PDD).

Yet Tesla also raised a net $3.9bn in new finance, on top of the $2.6bn raised in 2023.

A combination of excess cash flow and ongoing capital raising is another red flag that can signal accounting misstatements. Jacek Welc, professor of corporate finance at the SRH Berlin University of Applied Sciences, has examined 17 such examples including Germany’s Wirecard, the US-listed but Chinese-based Longtop Financial Technologies, and the FTSE-listed hospital chain NMC Health.

He says in those cases “allegedly healthy (but in reality inflated) operating cash flows tend to be matched by significantly positive financing cash flows (and a seeming “cash cow” appears to require large amounts of new debt and/or new equity financing).”

Tesla may of course be opportunistically managing its balance sheet, given its plans for substantial further capital investment.

The group sometimes has to manage short-term cash needs. Last year rising inventories soaked up $1.5bn in the first quarter. With thieves now targeting car parks holding spare vehicles and dealerships attracting protests, this year’s figure could be significantly higher.

Related links:
— What is cockroach theory? (Investopedia)
— Tesla’s departure from reality, in one chart (FTAV)
— Tesla is nuts, will it ever crash? (FTAV, 2020)

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Your guide to what the 2024 US election means for Washington and the world

You may have seen the latest developments on the political side of the news cycle. Alphaville tries to stay out of all that stuff as long as it doesn’t matter much to our main coverage areas, but it’s becoming hard to ignore.

Same goes for the sell-side, where the output has become subtly more critical lately, while still remaining cautious lest some poor analyst becomes the White House’s latest bête noir.

Kudos therefore to Evercore ISI, which waded into the latest kerfuffle with a question that everyone is probably asking, but you won’t see many investment analysts squarely address.

We’re going to quote from Evercore’s introduction at length just to lay out where things are:

With over 100 legal challenges filed in response to executive actions taken by the Trump Administration, perhaps it was only a matter of time before sharp tensions between the Executive and Judicial branches began to bubble up. Until this week, the Administration had by and large complied with court orders, albeit slowly and begrudgingly, including re-opening the CFPB, reinstating many fired probationary federal workers, and taking at least modest steps to pay some outstanding USAID claims.

This week, however, the Trump Administration stepped closer to the line of outright defiance, with planes carrying deportees taking off around the time a district court judge was determining the lawfulness of the deportation. The tensions in this case escalated to the point where President Trump called for the judge’s impeachment, leading Chief Justice Roberts to issue a rare public rebuke, noting that “impeachment is not an appropriate response to disagreement concerning a judicial decision.” 

The latest set of events — combined with a series of statements made by Trump and several top DOJ nominees — suggest we are edging closer to a situation in which the Administration may openly defy a Supreme Court order. Historically, Presidents have generally abided by Supreme Court rulings against them — even when the rulings were highly consequential. Open defiance of the Supreme Court would arguably represent uncharted constitutional territory.

. . . Markets have generally been willing to tolerate signs that U.S. political and legal stability is eroding. But would a constitutional crisis have market implications? We think underlying facts of the case matter.

While markets may be willing to overlook legal spats over certain subjects, if the Trump Administration defies a court order in a way that impacts meaningful government spending or undercuts the judiciary’s ability to enforce contracts or effectively mediate commercial disputes — which are foundational to the U.S. free market system — then we see higher risks of an adverse market reaction.

The main body of the report examines historical stand-offs between the US judiciary and executive branches, the cases currently pending, and whether US Marshals — who are tasked with carrying out a judge’s orders, collecting fines and arresting those that oppose them — would be actually able to do their jobs. Yep, that’s where we are today.

But for Alphaville readers, the main issue is probably Evercore’s view on whether this matters to markets, or when it might begin to matter.

As the investment bank’s analysts point out, markets “have generally shown a willingness to shrug off a continued erosion of US legal and political norms”. They might once again ignore a stand-off between two of the three main branches of the US political system as just more inevitable noise, or at least a lesser danger than tariffs.

Evercore’s broad conclusion is that the underlying case will affect whether and how much markets immediately react to the chaos, but that the real long-term danger is an insidious “erosion of market perceptions of US stability and safety”:

For example, if Trump defies courts in using the Alien Enemies Act of 1798 to deport suspected gang members without full due process protections, markets may not react. The issue at play is not fundamentally economic in nature, and while stripping of due process protections will certainly cause concerns, the Administration’s actions here will have been done on a relatively small scale and — the Administration would argue — only in response to the unprecedented circumstances of millions of excess immigration inflows relative to trend.

In contrast, if Trump defies a court order on a fundamentally economic or commercial issue — refusing a court order to pay a government contractor for work already completed, for instance markets might care more.

Even as certain norms around democracy and the rule of law have faced challenges in recent years, the U.S. judicial system has continued to function as an effective and independent mediator of economic and commercial disputes, providing an essential backbone to our free market system. Open defiance of a court order around payments or contracts would suggest that the U.S. government is no longer subject to the economic rule of law.

If the dispute is small enough in dollar terms and the Administration again argues the circumstances are unique, markets might also look through, say, the government stiffing an individual contractor. But we would remind investors that at least one senior Administration economic official has openly flirted with the idea of defaulting on Treasuries. And so at least as far as markets are concerned, we think a refusal to comply with a court order around government payments or contracts raises the possibility of an extremely dangerous slippery slope.

It is unclear whether a market response would come suddenly in response to a single event or slowly over time. Either way, the erosion of market perceptions of U.S. stability and safety would carry enormous economic impacts. As our former Evercore ISI colleague Ernie Tedeschi (who now serves as the Director of Economics of the Yale Budget Lab) has written:

“The US enjoys a safe harbor investment premium — a value that investors place on US safety, soundness and stability. Even a relatively modest move in risk premia would have profound implications for the US. If the US country risk premium moved to that of the current UK level, after 10 years, real equity wealth per household would be $50,000 lower and real GDP 1% smaller.”

Given the number of cases against the Trump Administration and the speed at which they are moving, there will likely be multiple near-term opportunities to test the markets resolve on this issue.

Yup, probably!

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Your guide to what the 2024 US election means for Washington and the world

Todd H Baker is the managing principal at Broadmoor Consulting.

Despite the headlines, the lawsuit brought by the Trump Organization against Capital One earlier this month has nothing to do with its ostensible subject, the dreaded demon of “debanking”. It has everything to do with the fact that Capital One needs a favour from the president if it wants to get its acquisition of Discover approved by federal bank and antitrust regulators. This should set the alarms off in corporate boardrooms everywhere.

The suit asserts that some of the Trump Organization’s bank accounts at Capital One were closed in 2021 for political reasons, which the bank denies. The suit itself has little or no merit, as many legal commentators have noted, although it stokes the right-wing grievance machine still outraged that Nigel Farage lost his Coutts private banking privileges when his balance got too low.   

In a normal world this kind of suit would easily be dismissed by the courts. But things are not so simple in Trump 2.0, where the mingling of personal and governmental interests is a feature not a bug.

When someone brings meritless legal claims — a Trump speciality — one has to assume that there is more at stake than the desire for a trial by jury. Sometimes it’s just to make news and affect public opinion. In this case, the debanking claims against Capital One conveniently give the president’s business interests the opportunity to get something in return for the exercise of Presidential authority. By any definition other than the Supreme Court’s, this smells like a quid pro quo.

At least there’s not a pattern here or anything . . . Well, actually, there is a pattern here.

The Capital One lawsuit is quite similar to the defamation claim brought by Trump’s private interests against Disney/ABC alleging libel. ABC, facing similarly weak claims, reportedly settled for $15mn not because they might lose but because their commercial interests require administration action from time to time, and they feared retribution. Trump’s ongoing multibillion-dollar suit against CBS over the editing of a 60 Minutes interview with Kamala Harris, is also reportedly close to settling because Paramount, the CBS owner, needs approval of its proposed acquisition by Skydance. And then there is claim against Meta that was settled for $25mn earlier this year.

The willingness of these companies to pay to keep on the president’s good side is like chum in the water to Trump 2.0, which knows a good thing when it sees it. 

In case you are wondering why something like this hasn’t happened before, it is worth pointing out that no other president in US history has retained the ownership and control of the large operating businesses necessary for this type of activity to work. Prior to 2016, it was considered beyond the pale for any president to have commercial conflicts of interest of any kind. Now it happens without comment, or with a shrug for the Trump exception.

This lawsuit puts Capital One and its board in an impossible position, which is the point of the whole exercise. For a relatively small amount, Capital One can settle the lawsuit with the expectation that it will be forgiven for lèse majesté, and its acquisition of Discover will be approved. It could probably even follow the “wink and a nod” approach and reach a settlement an appropriately cleansing number of months after the deal is approved. Problem solved for Capital One.

But the problem is just postponed, not solved. The demands for this type of “co-operation” in exchange for official action will never end, as business interests in authoritarian states have learned to their dismay time and time again. When your “business friendly” government places a price on friendship, you’ll keep paying and paying.

This is the dilemma all CEOs will face in the near future. As a collective matter — and as citizens — CEOs should openly resist any slide towards a “pay to play” relationship with government figures. But individually, they can convince themselves that their fiduciary duty to shareholders requires quiet submission. Courage is required to reject this way of thinking. Will any US CEO be brave enough?

The Capital One/Discover and Paramount/Skydance cases may also answer the vexing question about why the Trump Administration is continuing active antitrust enforcement despite strenuous opposition from its largest financial supporters in technology and finance.

As Trump has repeatedly shown, he is not a negotiator in the traditional sense. He’s not looking for win-win solutions. Instead, he seeks to combine bottleneck or blocking positions and litigation threats to force favourable outcomes.

What better example than to use his power over the approval or denial of mergers on antitrust grounds to get what he wants in other spheres from the companies involved?