Quiet Macro, But Significant Shifts Brewing

by Paul Hoffmeister, Chief Economist

Let’s create context for what’s led us to where markets are now to help create a framework for how they might evolve during the next 12-24 months. To some, markets might seem a little boring recently. For example, equity markets are generally trending higher, and bouts of weakness are relatively temporary. But these are times when, to others, markets are uncomfortable. Are things “too quiet”? There are a list of important things happening underneath the surface: notably in relation to Covid, the Fed and taxes – not to mention the political outlook.

Market Crash and Recovery

In February and March 2020, Covid-related travel bans and business closures correlated with panic in stock markets.

Beginning in late March 2020, new information about the segments of the economy reopening as well as aggressive monetary policy (zero interest rate policy and bond buying) correlated with the equity market recovery.

It appears that by the last week of March 2020, the worst fears were priced in and hopes emerged that at least some of the economy would reopen, at least in a limited way.

The 2020 Covid crash could be considered the third financial crisis of the last 20 years, at least for the United States. The speed and degree of the Covid panic and recovery typify the latest crisis.

At one point in 2020, the S&P 500 was down nearly 30% year-to-date; the Nasdaq down nearly 24%... The S&P 500 returned over 16% by year-end 2020; the Nasdaq over 43%.

Today, the State of Union is strong.

In recent months, the US economy is experiencing the strongest activity in the manufacturing and services sectors of the last decade, from the perspective of ISM data.

The U.S. unemployment rate is now below 6%, compared to almost 13% during the Covid crisis (and 3.8% prior to the global shutdowns).

Equity market volatility has recently been near a pandemic low.

Risk-taking in credit markets has rarely been stronger during the last 15 years, at least in terms of the spread between Moody’s Baa and Aaa-rated corporate credit.

There is some concern about the recent jump in inflation. Inflation spikes are not uncommon after economic crises. If gold prices stay calm, then we aren’t too concerned. We believe that the amelioration of supply chain bottlenecks will help the inflation environment stabilize.

But what to worry about today? First, as we have seen during the last 18 months, the Covid pandemic and the economic shutdowns/reopenings have been a key driver of financial markets.

Will the recent uptick in Covid numbers lead to renewed lockdowns and business restrictions?

In June 2021, some Federal Reserve policymakers began to seriously discuss the timeframe for raising interest rates. In 2018, the Fed’s interest-rate hiking outlook was arguably the primary driver of the market panics that year. Will the Fed delicately and adeptly handle any departure from its current ultra-dovish policy?

The Biden Administration is working with Congress on legislation to undo the 2017 corporate tax cuts (from 35% to 21%).

It’s possible that the U.S. statutory corporate tax rate will be raised to 25-27% in the coming months.

U.S. equities appeared to react favorably in 2017, early 2018 to corporate tax cuts. To us, it seems that the rescinding of some of those cuts will lead to a flat equity return environment or some weakness.

Kamala Harris’s prospects to be the Democratic presidential nominee in 2024 have worsened since early June, as her odds have fallen in the Predictit.org betting market.

The worsening in her probabilities appears correlated with her trip to Central America.

At the moment, former President Trump is the front-runner to be the Republican presidential nominee in 2024. Governor Desantis is slightly behind him as the next likely candidate.

---

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Paul Hoffmeister is chief economist and portfolio manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors, and co-portfolio manager of the Camelot Event-Driven Fund (tickers: EVDIX, EVDAX).

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B248
Disclosures:
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
• Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information.
• Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
• Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2021 Camelot Event-Driven Advisors, All rights reserved.

Chinese ADRs: Not (Yet) At Risk From The Clampdown

by Thomas Kirchner

• Legal uncertainties rekindled by Chinese clampdown.

• VIE structures have been found to be illegal by Chinese courts.

• Nuclear economic option unlikely except in major geopolitical conflict.

After Chinese regulators clamped down recently on tutoring companies and some online services, which is said to have wiped one trillion dollars off stock market valuations [i] some investors have expressed concern about further regulatory action. Especially at risk are Variable Interest Entities (VIEs), the structure used by all U.S.-listed Chinese companies because these structures are merely allowed by administrative action, and no law specifically allows them. With such weak legal underpinnings, a simple administrative measure could declare the VIE structure illegal and would wipe out $1.6 trillion in equity of all 248 U.S.-listed companies[ii]. The question is not whether, but on what occasion Chinese regulators will wipe out foreign shareholders.

Chinese VIEs and their risks

When Sino Forest went bankrupt after fraud allegations were revealed in June 2011, the complex structures of Chinese companies listed in the West became known widely. Because foreigners are not allowed to own companies in industries on China's 'restricted' list, a workaround was developed: Chinese nationals own the assets in China and then assign their economic interests to a holding company, often based in Cayman or the BVI, whose shares or ADRs are then listed on foreign exchanges. For example, Alibaba and ANT Financial are actually majority owned by co-founders Jack Ma and Simon Xie. The IPO prospectus states clearly how it works:

Due to PRC legal restrictions on foreign ownership […] we operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through wholly-foreign owned enterprises, majority-owned entities and variable interest entities. The relevant variable interest entities, which are 100% owned by PRC citizens or by PRC entities owned by PRC citizens, hold the ICP licenses. [...]These contractual arrangements collectively enable us to exercise effective control over, and realize substantially all of the economic risks and benefits arising from, the variable interest entities.[iii]

The key risk of this complicated arrangement is also disclosed in plain English:

If the PRC government deems that the contractual arrangements in relation to our variable interest entities do not comply with PRC governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations changes in the future, we could be subject to penalties or be forced to relinquish our interests in those operations. […] It is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. [iv]

In other words: nobody knows how solid the structure is.

There seem to be two schools of legal thought here: not surprisingly, law firms writing legal opinions for IPO prospectuses hold the view that the VIE structure is legal. This view is bolstered by their tacit endorsement by Chinese bureaucrats, who would probably take action if hundreds of large, public financial transactions were gross violations of the law.

Skeptics counter that contracts written to circumvent the law are unenforceable under Chinese law. There have been several cases in which Western shareholders have tried to enforce VIE contracts in Chinese courts, all of which failed. In the 2012 Chinachem case, the People's Supreme Court ruled after 12 years of litigation that Hong Kong-based Chinachem could not enforce the VIE contracts for shares of Mingsheng Bank because the contracts were designed to circumvent the law. However, the court ordered compensation be paid to Chinachem in the amount of 40% of the value of the shares, so the investor did not suffer a complete loss. In Gigamedia, the local nominee owner of the business, Wang Ji, simply transferred the assets to himself. When VIE shareholders attempted to recover their investment through arbitration, the tribunal took a similar rationale as the People's Supreme Court in Chinachem and declared the VIE contract unenforceable. [v] [vi] It is notable that a private arbitration tribunal came substantially to the same conclusion as a court of law. We take that as an indication that the favorable legal opinions of law firms in IPO prospectuses may be overly optimistic.

It appears to us that VIEs are tolerated by Chinese regulators mainly because they bring in foreign investment. Regulators maintain the upper hand and have a free option to enforce Chinese law any time it becomes convenient for them to expropriate foreign shareholders quietly.

How serious is the VIE risk?

To gauge the risk that Chinese regulators may take action against VIEs and wipe out U.S. shareholders, it helps to look at another precedent in which an emerging market dictatorship seized a company and wiped out foreign shareholders: the 2003 arrest of Russian oligarch Mikhail Khodorkovsky and subsequent breakup and forced bankruptcy of oil company Yukos over allegedly unpaid taxes.

As Russia's richest man at the time, Khodorkovsky had challenged Vladimir Putin's ascent to power and was openly contemplating entering politics. The ferocity of Khodorkovsky's prosecution and seizure of Yukos should not be mistaken as capricious acts of a mad dictator, but were carefully calculated to set an example and dissuade others from challenging Putin. In that sense, the strategy worked very well, because numerous other Putin-critical oligarchs promptly went into exile.

We believe that China's current clampdown follows a similar logic of power preservation by a dictator who is still consolidating his position. This view is consistent with the suspension of Ant Group's IPO in October 2020, which is reported to have been ordered by President Xi Jinping personally [vii], a clear indication the decision was political in nature. The widely reported explanation for the suspension concerns Jack Ma's October 24 criticism of regulators during a conference in Shanghai. However, a decision taken at such a high level points to another reason: Jack Ma was close to former Premier Jiang Zemin, whose vision of free enterprise is on the opposite end of the spectrum compared to Xi's stone-age communist emphasis on state ownership. Many Zemin associates are said to have been investors in a private equity fund run by Zemin's grandson, which was heavily invested in ANT Financial. The IPO would have given Zemin's circle a multi-billion dollar windfall, which would have been a substantial war chest in any future power battle, an outcome Xi prevented by stopping the IPO.

We believe that we can extrapolate this precedent and that an eventual clampdown on VIEs is inevitable, but it will not come as a result of domestic policy considerations, much less due to random, capricious regulatory actions. Wiping out $1.6 trillion in wealth from foreigners is not something the Chinese government would take lightly. It is an economic nuclear option whose use makes sense only under overwhelming foreign policy considerations. For example, should China attempt to invade Taiwan and should the United States actively support Taiwanese resistance, a cancellation of all VIE contracts would be a possible form of economic warfare. Similarly, should the trade war escalate, disputes over mineral right in the South China Sea intensify or should the West become more serious about human rights violations in China, retaliation against VIEs could be a policy option for Xi.

The market, of course, recognizes the risks inherent in Chinese companies listed in the West. That is why many trade at a discount to what they would be worth in the Chinese market, which opens the door for management to take them private for a low valuation and relist them shortly thereafter in China at a much higher valuation, pocketing the difference.

[i] “Investors Lose $1 Trillion in China's Wild Week of Market Shocks” bloomberg.com, July 30, 2021.
[ii] Noriyuki Doi, Takenori Miyamoto: “Crackdown on US listings: Will China close $1.6tn VIE loophole?” Nikkei Asia, July 14, 2021.
[iii] Form F-1 filed with the Securities and Exchange Commission by Alibaba Group Holding Limited on May 6, 2014.
[iv] ibid.
[v] Brandon Whitehill: “Buyer Beware: Chinese Companies And The VIE Structure.” Council of Institutional Investors, December 2017.
[vi] Charles Comey , Paul McKenzie, Y. Michelle Yuan, Sherry Yin: “China VIEs: Recent Developments And Observations.” Morrison and Foerester, August 19, 2013.
[vii] Jing Yang, Lingling Wei: “China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant IPO.” The Wall Street Journal, November 12, 2020.

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Thomas Kirchner, CFA, has been responsible for the day-to-day management of the Camelot Event Driven Fund (EVDIX, EVDAX) since its 2003 inception. Prior to joining Camelot he was the founder of Pennsylvania Avenue Advisers LLC and the portfolio manager of the Pennsylvania Avenue Event-Driven Fund. He is the author of 'Merger Arbitrage; How To Profit From Global Event Driven Arbitrage.' (Wiley Finance, 2nd ed 2016) and has earned the right to use the CFA designation.

Camelot Portfolios LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B255
Disclosures:
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
• Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
• Camelot Portfolios, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Portfolios, LLC’s disclosure document, ADV Firm Brochure is available at www.camelotportfolios.com

Copyright © 2021 Camelot Portfolios, All rights reserved.

Morningstar Alts Categories Catch Up

by Thomas Kirchner, CFA

• Better match with hedge fund categorizations.

• Performance comparable between similar categories of hedge and mutual funds.

• Liquid alts have tax benefits over LPs..

At the beginning of May, Morningstar reorganized its categories for alternative mutual funds in the U.S.[i]. The result is a closer alignment of alternative mutual fund classifications with hedge fund classifications, which are the gold standard for alternatives. It has been a slow road to get these asset classes to match up. Even though the strategies are often identical, they were classified differently for hedge funds and alternative mutual funds, making comparisons difficult. Especially investors with access to both types of funds were impacted and may often have ended up investing in higher priced hedge funds when equivalent mutual funds with lower cost and better tax efficiency were available.

The U.S. has lagged international markets in the adoption of hedge fund strategies in formats accessible to the public. Morningstar has often been the catalyst for change in the industry, and the recent reclassification is likely to accelerate an expansion of hedge fund strategies in '40 Act format.

All this comes amid a background of strengthening performance of alternative '40 Act mutual funds, which are competitive with hedge funds albeit with a far superior liquidity and operational risk profile.

Limitations of the '40 Act Space

We have come a long way since Morningstar first introduced a long/short category in 2006. Mutual funds that used shorting had been around since the 1980s, but had been lumped in with traditional style boxes. This led many in the hedge fund industry to make the false claim that mutual funds were not allowed to sell short – a powerful, albeit completely false marketing argument.

Since then, many alternative strategies have been launched, but unfortunately, not always for good reasons. Large fund complexes sometimes started funds that appear to have been driven more by marketing considerations than the availability of a good strategy run by a competent manager. Whenever Morningstar creates a box, fund marketing departments feel a need to offer a fund in that box.

Despite the growth of alternative mutual funds, the sector remains far behind true hedge funds in the U.S. The situation is different internationally, where the UCITS structure has attracted both assets and hedge fund managers. Originally, UCITS were created in the EU but these vehicles have been such a success that they are now recognized by and can be distributed in many non-EU countries from the middle East to East Asia and Latin America.

The key to success of UCITS, and the reason for the comparatively marginalized existence of U.S. mutual funds, is the difference in performance fees. While U.S. mutual funds allow only watered-down versions of performance fees, UCITS allows managers to charge such fees in the same way as they do in their flagship hedge funds. The result is that many leading hedge fund firms were willing to launch versions of their strategies in UCITS funds, but not in U.S. mutual funds.

In turn, the availability of brand name hedge fund managers in UCITS vehicles made this structure acceptable to investors, including institutions, while alternative U.S. mutual funds continue to suffer from investor snobism.

The new categories

These are the new Morningstar category classifications for alternative mutual funds, along with similar HFRI categories and their respective 5-year annualized returns:

Morningstar retired a number of other categories. Unfortunately, this includes the bear market category, so that short-selling funds no longer are easy to find. We question whether this decision was driven more by performance considerations of the underlying funds. The result is that hedge fund classifications remain better for short-selling funds.

As can be seen from the performance in the table above, the perception that hedge funds are superior to their mutual fund peers is no longer true. In a few categories, mutual funds even outperformed hedge fund over the last five years. This is even more remarkable considering that leverage tends to be higher in hedge funds, which also have the benefit of locking up their investors for long periods of time, whereas mutual funds give their investors daily liquidity.

Tax efficiency

Limited partnerships benefit from pass-through taxation, which sounds great until you look at the details. Generally, pass-through taxation is inferior to Subchapter M taxation of mutual funds, which is similar to how REITs are taxed. The problem with pass-through taxation is that, as the name suggests, all incomes and expenses are passed through to the taxpayer. Once they show up on the taxpayer's tax return, they are subject to limitations on deductibility. For example, management fees can only be deducted to the extent that they exceed 2% of the taxpayer's AGI. Therefore, you could be in a situation where a fund passes through short-term capital gains of 2%, which are fully taxable at income tax rates (over 50% in NY or CA), resulting in a net return of 1%. Once you factor in a 2% management fee, the net after-tax return of the fund is negative, approximately -1%. In contrast, a mutual fund, as in a REIT, the management fee and all other expenses are deducted from gains, resulting in a net after-tax return of zero, which outperforms the hedge fund structure solely because of the hedge fund's unfavorable pass-through tax treatment.

[i] Erol Alitovski: “Introducing the New Alternative Morningstar Categories.” morningstar.com, April 29, 2021.

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Thomas Kirchner, CFA, has been responsible for the day-to-day management of the Camelot Event Driven Fund (EVDIX, EVDAX) since its 2003 inception. Prior to joining Camelot he was the founder of Pennsylvania Avenue Advisers LLC and the portfolio manager of the Pennsylvania Avenue Event-Driven Fund. He is the author of 'Merger Arbitrage; How To Profit From Global Event Driven Arbitrage.' (Wiley Finance, 2nd ed 2016) and has earned the right to use the CFA designation.

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B245
Disclosures:
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
• Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
• Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2021 Camelot Event-Driven Advisors, All rights reserved.

Quiet Macro, But Significant Shifts Brewing

by Paul Hoffmeister, Chief Economist

• Some Covid case numbers stopped improving.

• The Federal Reserve began to telegraph a shift away from its current easy money policy.

• A concerted effort is underway to raise corporate tax rates around the world.

• Following Vice President Kamala Harris’s trip to Central America, her political prospects in 2024 took a notable turn for the worse in betting markets. However, President Biden’s probability of being the 2024 Democratic nominee improved.

From our perspective, it’s a relatively quiet and positive market environment these days. The CBOE Volatility Index reached a Covid low; the S&P 500 is up over 15% year-to-date; credit spreads such as the Moody’s Baa-Aaa spread is tighter than it was in at the beginning of 2020; and the number of Americans filing for unemployment benefits has reached its lowest levels since the start of the pandemic.

Despite the steady, favorable trends and it being the middle of summer, a number of significant events occurred during the last month that may have larger implications in the coming months. Some Covid case numbers stopped improving. The Federal Reserve began to telegraph a shift away from its current easy money policy. A concerted effort is underway to raise corporate tax rates around the world. And, Vice President Kamala Harris’s political prospects took a turn for the worse following her trip to Central America.

Covid

Since mid-June, the 7-day moving average of new Covid cases each day around the world has increased from approximately 360,000 to 420,000 – according to Johns Hopkins. This comes after the steep decline in daily case counts from over 800,000 since late April. Based on the Johns Hopkins data, the increases are primarily coming from the UK, South Africa, Russia, India, and Indonesia.

Similar to what happened in March after confirmed cases increased, many expect the death toll to increase in the coming month. For the most part, lockdown restrictions around the world have eased; but if the current trend in the Covid numbers continues, it certainly raises the risk of extended or reimposed lockdowns.

Fed Policy

On June 16, following its two-day policy meeting, the FOMC raised its inflation forecast from 2.4% to 3.4%, and a number of members conveyed that they expect at least two quarter-point rate increases by the end of 2023. In March, no officials expected a lift off from today’s zero interest rate policy until 2024.

While the news sparked a slight weakness in equities during the afternoon of the announcement (the S&P fell about 70 basis points at one point), the most pronounced moves occurred in the Treasury and gold markets.

The last time that the Fed attempted to normalize policy was 2018, and the market panic at the time strongly argued that the Fed failed in both implementing the correct policy course and effectively telegraphing central bank policy. This and the unique pandemic circumstance today don’t leave a lot of room for error for the FOMC today.

For now, the FOMC is telegraphing a change in policy more than 2 years from now. And Chairman Powell stated in the post-meeting press conference, “This is an extraordinarily unusual time, and we really don't have a template or any experience in a situation like this.”

It appears that the Fed communication strategy is to give itself significant lead time to communicate a policy change while being transparent that it simply doesn’t know its policy path, at least with a high degree of conviction.

Tax Outlook

The tax outlook remains uncertain after the Biden Administration failed during the spring to convince its entire Democratic Senate caucus to support its corporate tax plan. Senators Manchin (D-WV) and Sinema (D-AZ) were the key holdouts, by opposing major tax increases via the budget reconciliation process which requires a simple majority vote in the Senate. Note, too, that many House Democrats from high-tax states criticized the White House’s plan to not increase the $10,000 cap on state and local income tax deductions.

But the Biden team isn’t done. Thanks to negotiations led by Treasury Secretary Yellen, there appears to be an agreement being reached between most G20/OECD countries on a global tax deal. The OECD/G20 Inclusive Framework has two key elements. “Pillar One” appears mainly aimed at preventing major, multinational technology companies from avoiding taxes, by looking to tax profits based on the location of customers. “Pillar Two” would establish a minimum global corporate tax rate of 15%.

There are still some holdouts, and some of those countries’ ascent will be crucial to reach an agreement; and many technical details remain. But the White House is hoping that progress here will help persuade legislators in Washington that raising corporate tax rates in the US will not put American companies at a major competitive disadvantage… The threat of a higher US corporate tax rate remains; its probability appears to be 65% at the moment. We expect Senate Majority Leader Schumer to make a strong push in the coming weeks to pass a tax bill before the August recess.

U.S. Political Outlook

Three months ago, the Predicit betting market was giving Vice President Harris a 40% probability of becoming the 2024 Democratic Presidential Nominee, and President Biden 37%. But Harris’s political future took a significant blow in June, falling from 38% on June 1 to 30% as of July 9. The turn for the worse appeared to correlate with her trip to Central America on June 6.

Last week, Axios reported on significant concerns about Harris from inside the White House. According to Hans Nichols: “Some Democrats close to the White House are increasingly concerned about Harris’s handling of high-profile issues and political tone deafness, and question her ability to maintain the coalition that Biden rode to the White House.”

President Biden has mostly captured the points that Harris has lost in the betting market. But will Biden really run for re-election at the age of 81?

If Biden and Harris aren’t the nominees in 2024, there doesn’t seem to be an obvious alternative today. Every other Democrat is polling at 6% or less on Predictit. Will it be another Establishment Democrat or someone more aligned with the Progressive wing -- led by Senator Bernie Sanders and firebrand Congresswoman Alexandria Ocasio-Cortez, who leads the small group of House members called “The Squad”.

Harris’s performance in June elevates the importance of the special election on August 3 for an open congressional seat in Ohio. Progressives are backing Nina Turner, a former state senator and co-chair of Sanders’s 2020 presidential campaign; while the establishment is supporting Shontel Brown, chair of the Cuyahoga County Democratic Party… At the moment, Predictit is giving Turner a better than 80% probability of winning. If Turner wins, it forces the question: what will that do to the longer-term Democratic policy agenda? A more concerted effort toward higher taxes and Medicare for All?

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Paul Hoffmeister is chief economist and portfolio manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors, and co-portfolio manager of the Camelot Event-Driven Fund (tickers: EVDIX, EVDAX).

B242 // Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537
Disclosures:
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
• Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information.
• Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
• Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2021 Camelot Event-Driven Advisors, All rights reserved.

Special Update: GIPS Compliant!

Please see our exciting update below from our CEO!